GIFT  OF 


SEF 


UNIVERSITY  OF  ILLINOIS  BULLETIN 

VOL.  X  OCTOBER  7,   1912  NO.  6 

[Entered    February    14,    1902,   at   Urbana,    Illinois,   as   second-class   matter 
under   Act  of   Congress    of   July    16,    1894.] 


UNIVERSITY  OF  ILLINOIS 

QUESTIONS  SET  AT  THE  EXAMINATIONS 
OF  CANDIDATES  FOR  THE  CERTIFI- 
CATE OF  CERTIFIED  PUBLIC 
ACCOUNTANT  IN 
ILLINOIS 

1903-1912 


PRICE    75    CENTS 


URBANA 
PUBLISHED  BY  THE  UNIVERSITY 

1912 


THE  UNIVERSITY  OF  ILLINOIS 


EDMUND  J.  JAMES,  Ph.  D.,  LL.  D.,  President 


BOARD    OF   TRUSTEES 

EX    OFFICIO: 

The   Governor  of  Illinois,   CHARLES   S.   DENEEN,    Springfield 

The  President   of  the  State  Board   of   Agriculture,   GEORGE  A.    ANTHONY, 

Kewanee 
The  Superintendent  of  Public  Instruction,  FRANK  G.   BLAIR,   Springfield 

MRS.  CARRIE  ALEXANDER-BAHRENBURG Belleville  ^  Term  of  Office 

FRED  L.  HATCH Spring  Grove  L      expires  in 

A.  P.   GROUT Winchester  J  1913 

MRS.    LAURA  B.   EVANS Taylorville  -,  Term  of  Office 

ARTHUR   MEEKER Union   Stock  Yards,   Chicago   I      expires  in 

ALLEN    F.    MOORE Monticello  J  1915 

WILLIAM  L.   ABBOTT, 120  Adams  Street,  Chicago  >  Term  of  Office 

MRS.  MARY  E.  BUSEY Urbana   L      expires  in 

OTIS  W.   HOIT Geneseo  J  1917 

OFFICERS  OF  THE  BOARD 

WILLIAM   L.   ABBOTT,   120  Adams  St.,  Chicago President 

CHARLES   MAXWELL   McCoNN,   Urbana Secretary 

HENRY  A.  HAUGAN,  State  Bank  of  Chicago,  Chicago Treasurer 

PROFESSOR  S.  W.  SHATTUCK,  Champaign Comptroller 


UNIVERSITY  COMMITTEE  ON   ACCOUNTANCY 

DAVID  KINLEY  M.  H.  ROBINSON,  Sec'v. 

C.   M.  McCoNN 


BOARD  OF  EXAMINERS  IN   ACCOUNTANCY 

JOHN  A.  COOPER,  C.   P.  A.,  Chicago 

W.  ERNEST  SEATREE,  C.  P.  A.,  Sec'y,  Chicago 

SILAS  H.  STRAWN,  Chicago 


UNIVERSITY  OF  ILLINOIS 


QUESTIONS  SET  AT  THE  EXAMINATIONS  OF 
CANDIDATES  FOR  THE  CERTIFICATE  OF 

CERTIFIED 

PUBLIC    ACCOUNTANT 
OF    ILLINOIS 

19O3-1912 


PUBLISHED  BY  THE  UNIVERSITY 

1912 


COURSES  IN 
BUSINESS  ADMINISTRATION 


The  University  of  Illinois  offers  courses  which  afford 
special  training  to  young  men  who  are  looking  forward  to 
business  careers. 

The  subjects  of  instruction  are  adapted  to  give  that 
general  training  which  is  valuable  whatever  the  line  of  busi- 
ness the  student  intends  to  enter,  and  also  to  furnish  training 
specially  adapted  to  the  particular  career  chosen.  Among 
the  subjects  of  instruction  are 

Accountancy. 

Banking,  in  theory  and  practice. 

Business  organization. 

Corporation   organization   and    management. 

Commerce. 

Commercial  law. 

Finance,  public  and  private. 

Railway  management. 

Insurance. 

Journalism. 

In  addition  to  these  subjects  wide  opportunity  is  offered 
for  the  study  of  foreign  languages,  economics,  sociology, 
law,  science  of  government,  and  business  correspondence 
in  English  and  in  foreign  languages. 

SCHOOL  OF  RAILWAY  ENGINEERING 
AND    ADMINISTRATION 

It  is  the  purpose  of  this  school  to  provide  courses  of 
training  which  shall  prepare  men  to  become  efficient  work- 
ers in  the  financial,  traffic,  and  operating  departments  as  well 
as  in  the  engineering  departments  of  steam  and  electric 
railways. 

At  present  the  following  courses  ar,e  offered : 

1.  COURSE    IN  RAILWAY   CIVIL   ENGINEERING. 

2.  COURSE    IN  RAILWAY    ELECTRICAL  ENGINEERING. 

3.  COURSE    IN  RAILWAY    MECHANICAL  ENGINEERING. 

4.  COURSE   IN  RAILWAY   ADMINISTRATION. 


TABLE  OF  CONTENTS 


Practical 

Theory  of    ( 

Commercial 

Examination 

Accounting 

Auditing 

Accounts 

Law 

November,    1903.. 

5 

89 

118 

141 

May,  1904  

ii 

QO 

I2O 

142 

November,  1904  .  . 

15 

-7W 

91 

121 

T"^ 

143 

May,    1905    

10 

03 

123 

144 

May,    1906    

22 

06 

124 

147 

Mav,    1007    . 

y*J 

07 

126 

Jif/ 
148 

December,  1907  .  . 

39 

v/ 
IOO 

127 

Atfjv 

149 

May    1908 

.- 

IO2 

I2Q 

J-o 

November,    1908.. 

5i 

104 

130 

152 

May,    1909    

56 

106 

131 

JCJ. 

May,    1910    .  . 

O^-7 

61 

1  08 

132 

•*  OT* 

December,  1910  .  . 

66 

109 

•«>* 
134 

156 

May,    1911 

72 

in 

136 

I  ^7 

Mav.    1012    . 

/  •** 
77 

113 

*OW 

137 

m8 

278214 


PRACTICAL  ACCOUNTING 

CHICAGO,  NOVEMBER  20  AND  3RD,  1903. 
(Time  3  Hours.) 

1.  On  Aug.  2Oth  John  Doe  put  in  Richard  Roe's  store  on  joint 
account  merchandise  amounting  to  $3,240.00,  Roe  adding  the  same 
amount. 

Aug.  25th  they  buy  on  joint  account  merchandise  amounting  to 
$9,000.00  each  partner  paying  his  share  in  cash. 

Aug.  28th  they  put  into  the  account  $4,000.00.  Roe  puts  in  of 
this  amount  $2,500.00  in  merchandise  from  his  store.  Doe  puts  in 
$1,500.00  in  merchandise  from  his  store,  and  pays  Roe  $500.00  in 
cash  to  share  equally  in  this  investment. 

Sept.  loth  Roe  sells  on  their  joint  account  merchandise  amount- 
ing to  $9,500.00. 

On  the  same  date  by  agreement  they  withdrew  $6,480.00  in 
merchandise,  each  one-half  $3,240.00. 

Sept.  22nd  Roe  sells  to  John  Green  on  account  merchandise 
amounting  to  $4,800.00. 

Oct.  4th  Roe  sold  to  Green  &  Joyce  50  shares  of  Merchants' 
Bank  Stock  for  $5,500.00  and  bought  of  them  in  part  payment 
merchandise  amounting  to  $5,000.00  for  joint  account  of  himself  and 
Doe,  each  $2,500.00,  receiving  the  balance  in  cash,  $500.00. 

Oct.  25th  they  agreed  to  close  their  speculation  and  joint  ac- 
count and  they  each  take  delivery  of  one-half  the  merchandise 
remaining  unsold.  Total  amount  unsold  $5,000.00. 

Write  the  journal  entries  necessary  to  present  these  transac- 
tions on  Roe's  books. 

Prepare  ledger  account.  Roe  charges  commission  on  sales 
2y2%,  remits  Doe  one-half  net  proceeds  in  cash. 

Show  journal  entries  closing  the  ledger  account  on  Roe's 
books. 

2.  A  malting  company  was  placed  in  the  hands  of  a  Receiver 
in  Bankruptcy.     The  assets  inventoried  by  the  Receiver  were : 

Accounts    Receivable $218,477  15 

Grain  and  Products  in  Malt  House 29,359  74 

5 


6         ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

An  order  of  the  court  was  entered  instructing  the  Receiver  to 
ccnt=nue  the  operation  of  the  business.  After  the  Receiver  had 
operated  the  business  two  months,  a  settlement  was  effected,  and 
the  Receiver  discharged  by  the  Court,  the  bankrupt  company  re- 
suming business.  The  Receiver's  books  of  the  bankrupt  company's 
accounts  showed  at  the  date  of  his  discharge: 

Collections  on  account  of  the  Accounts  Receivable  inventoried 
above  $10,097.60;  they  showed  that  in  trade  the  Receivers  had 
made  gross  sales  to  the  amount  of  $114,806.62;  his  grain  purchases 
were  $110,786.61;  manufacturing  expenses  $7,279.07;  selling  ex- 
penses $7,956.97;  Receiver's  charges  $1,000.00;  discounts,  shortages 
and  merchandise  returned  $1,370.85;  on  hand  in  grain  and  products 
$51,005.62;  he  has  collected  in  cash  on  Receiver's  sales  $65,448.83; 
he  owes  an  open  account  $5,237.52;  borrowed  from  banks  $46,251.10, 

Prepare  trading  statement  showing  profit  or  loss  from  Receiv- 
er's operations,  and  prepare  final  balance  sheet  statement  from  the 
face  of  the  Receiver's  accounts  of  the  bankrupt  company  at  the 
close  of  the  receivership. 

3.  Brown  and  Jones  begin  a  partnership  business  Jan.  ist, 
1902,  at  the  time  of  closing  the  books,  Dec.  31,  1902,  an  examina- 
tion of  the  account  revealed  the  following: 

Jan.  ist  Brown  paid  in 9,000  oo 

May  ist  Brown  paid  in 2,400  oo 

June  ist  Brown  drew  out 1,800  oo 

Sept.  ist  Brown  drew  out 2,000  oo 

Oct.   ist  Brown  paid  in 800  oo 

Jan.    ist   Jones   paid   in 3,ooo  oo 

March  ist  Jones  drew  out 1,600  oo 

May  ist  Jones  drew  out 1,200  oo 

June   ist  Jones  paid  in 1,50000 

Oct.    ist   Jones   paid   in 3,00000 

Their  merchandise  account  was  Dr.  $32,000.00,  Cr.  $27,000.00. 
Balance  of  merchandise  on  hand  per  inventory  $10,500.00.  Cash 
on  hand  $4,900.00.  Bills  receivable  $12,400.00.  Chas.  Green  owes 
on  account  $250.00;  F.  Rraper  owes  $700.00;  Wm.  Clark  owes  $650.- 
oo;  F.  Hart  owes  $850.00.  They  owe  on  their  notes  $1,890.00. 
They  owe  A.  Reed  on  account  $240.00;  owe  C.  Smith  $500.00;  owe 
A.  Clark  $100.00.  Their  Profit  and  Loss  Account  shows  before 


PRACTICAL  ACCOUNTING  7 

closing  entries  Dr.  $866.00;  Cr.  $1,520.00;  Expense  account  is  Dr. 
$2,520.00.  Commission  Account  is  Cr.  2,760.00;  Interest  is  Dr. 
$480.00 ;  Cr.  $950.00.  The  gain  or  loss  is  to  be  divided  in  proportion 
to  each  partner's  capital,  and  in  proportion  to  the  time  it  was 
invested. 

Prepare  (i)  Asset  and  liability  statement.  (2)  Merchandise 
account  closed.  (3)  Profit  and  Loss  account  closed.  (4)  Each 
partner's  account  closed.  (5)  Balance  sheet. 

4.  The  Warrant  Shoe  Company's  subscription  book  was 
opened  Nov.  6,  1902,  in  accordance  with  the  provisions  of  the 
Corporation  Act  of  the  State  of  Illinois:  The  Capital  Stock  of 
$65,000.00  in  shares  of  $100.00  each  was  subscribed  as  follows : 

John   Smith  175  shares $17,50000 

Henry  Jones  175  shares 17,500  oo 

Samuel  Burns  50  shares 5,ooo  oo 

Charles   Hill  30  shares 3,000  oo 

James  Russell         120  shares 12,00000 

Hugo  Allen  100  shares 10,000  oo 

The  subscribers  convened  on  the  26th  day  of  November  and 
elected  the  three  first  above  named  subscribers,  directors. 

Certificate  of  incorporation  was  issued  Dec.  6th,  1902,  by  the 
Secretary  of  State. 

At  a  meeting  of  the  Board  of  Directors  held  on  the  I4th  day 
of  January,  1903,  the  secretary  reported  that  there  had  been  filed 
with  him  assignment  of  subscriptions  to  the  capital  stock  of  the 
company  to-wit :  4  assignments  by  James  Russell  as  follows : 

To   John    Smith 25  shares 

To  Henry  Jones    25  shares 

To  Chas.  Frank 20  shares 

To  Samuel  Burns 50  shares 

Also  assigned   from  Charles  Hill   to  Charles 

Frank     30  shares 

The  Secretary  of  the  Board  presented  to  the  meeting  a  com- 
munication from  John  Smith  representing  Henry  Jones,  Charles 
Frank  and  himself.  The  communication  was  an  offer  to  sell 
and  transfer  to  the  company  by  instruments  of  conveyance  and 
transfer,  all  the  machinery,  dies,  lasts,  patterns,  furniture,  fixtures, 
materials,  rough  and  manufactured  goods,  accounts  receivable,  cash 
in  bank,  subject  to  accounts  payable  of  the  business  now  being  con- 
ducted by  John  Smith,  Henry  Jones  and  Charles  Frank,  being  the 


8          ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

business  of  manufacturing,  buying,  selling,  also  dealing  in  Boots, 
Shoes  and  Leather.  Smith,  Jones  and  Frank  submitted  a  certified 
report  of  an  independent  firm  of  Auditors,  Appraisers  and  Valu- 
ators as  to  their  financial  conditions,  in  the  following  words  and 
figures,  to-wit : 

Possessions      Liabilities 

Machinery  (as  per  schedule)  $   9,156  18 

Dies,  lasts  and  patterns  7,532  45 

Furniture  and  fixtures  1,028  74 

Store  room  material  11,588  75 

Goods  in  process  4,612  04 

Manufactured  products  851  85 

Insurance   unexpired  220  75 

Accounts  receivable  10,025  63 

Cash  "  1,785  04 

Accounts  payable  $   7,632  01 

Net  worth  of  business  39,169  37 


$46,801  38        $46,801  38 

The  proposal  submits  two  propositions :  First,  to  convey  this 
business  to  the  Warrant  Shoe  Company  for  the  sum  of  $39,169.37 
in  cash;  or  second,  to  transfer  to  the  company  the  business,  by 
crediting  Smith.  Jones  and  Frank  on  account  of  their  subscriptions  to 
the  stock  of  the  Warrant  Shoe  Company,  accepting  the  Company's 
credit  upon  open  account  for  any  excess  of  their  individual  pro- 
portionate holdings  in  the  business  to  be  turned  over,  and  to  exe- 
cute their  individual  promissory  notes  bearing  interest  at  6%  per 
annum  for  any  sum  their  proportional  holdings  in  the  old  company 
may  be  short  of  the  amount  of  their  individual  subscriptions. 

Smith  had  invested  in  the  business  to  be  turned  over  $18,225.29 ; 
Jones  $7,365.00;  Frank  $1,122.00.  The  net  worth  of  the  business  as 
shown  above,  over  their  investments,  is  proportionate  to  their 
respective  investments. 

The  Diretcors  adjourned  to  meet  Jan.  15,  upon  which  date  a 
meeting  of  the  stockholders  was  called  to  consider  the  advisability 
of  accepting  the  proposition  of  John  Smith,  representing  Jones, 
Frank  and  himself.  The  stockholders  met  pursuant  to  the  call  Jan. 
15,  1903,  and  accepted  the  proposal  of  Smith,  Jones  and  Frank,  and 
authorized  the  officers  of  the  company  to  consummate  the  purchase 


PRACTICAL  ACCOUNTING  9 

on  the  terms  of  the  second  proposition  above  stated.  The  transfers 
were  effected,  stock  issued  and  purchase  consummated  on  Jan.  I5th. 

On  Jan.  15  Hugo  Allen  pays  his  subscription  in  cash,  and  stock 
issued  to  him. 

On  Jan.  15  Samuel  Burns  pay^s  his  subscription  in  cash  and 
stock  issued  to  him. 

Prepare  Balance  Sheet  of  the  Warrant  Shoe  Company  as  of 
Jan.  15  and  state  in  a  general  way  what  the  records  of  the  Warrant 
Shoe  Company  should  show,  and  what  papers  should  be  executed 
and  in  the  files;  also  give  list  of  stockholders  and  their  respective 
holdings  as  of  Jan.  isth. 

5.  A  firm  of  four  partners  agreed  to  sell  their  business  to  a 
corporation.     Their  assets  and  liabilities  were  as  follows :     No.  I — 
Capital  $145,500.00;  No.  2 — Capital  $123,500.00;  No.  3 — $153,000.00; 
No.  4 — $152,330.00;   Building  $125,000.00;   Machinery,  fixtures,  etc., 
$38,335.00;  Stock  $150,940.00;  Accounts  receivable  $328,680.00;  Bills 
receivable  $37,005.00;  Cash  $17,030.00;  Horses  and  wagons  $1,230.00; 
Unexpired  insurance  $175.00;  Accounts  payable  $124,065.00. 

It  was  further  agreed  that  the  partners  were  to  be  paid  for 
good  will,  based  on  a  year  and  a  quarter  purchase  of  the  last  three 
year's  profits,  which  were  respectively  $32,620.00,  $37,450.00  and 
$50,650.00. 

Prepare  a  Balance  Sheet,  bringing  in  the  good  will  as  an  asset 
and  distributing  it  equally  among  the  four. 

6.  A  Gas   Company  presents  a  statement   at  the  close  of  its 
fiscal  year  of  cost  of  putting  gas  in  holders  and  whole  cost  of  gas 
per  thousand  cubic  feet.     Their  statement  is  given  in  detail  and  is 
made    up    of    the    following : 

ITEMS  OF  COST. 

Cost  of  gas  in  holders $28,178  92 

Generator   fuel    $  1,063  68 

Gas  coal    13,086  66 

Boiler  fuel   679  51 

Bench  fuel   3,433  72 

Manufacturing  labor  6,838  17 

Manufacturing  supplies   214  13 

Oil 2,054  57 

Purification  labor  168  72 


io        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

Purification    supplies    89  82 

Bench  repairs   29  58 

Gas  house  machinery  repairs 520  86 

Distribution    1,887  39 

Distribution  labor    578  57 

Distribution  supplies  60  72 

Street  lamp  operating 216  04 

Repairs  and  renewal  of  meters 102  65 

Repairs  and  renewals  of  services   129  80 

Repairs   and  renewals    of   mains 799  6 1 

General  expense 9,267  72 

Salaries  of  officers    3,300  oo 

Accounting  department   3,5oi  66 

General  office  sundries    435  21 

Canvassing  669  oo 

Rentals    752  67 

Stationery,  printing  and  postage 454  64 

Legal    15454 

Discount  on  consumers'  bill 10,693  44 

Insurance    1,618  89 

Taxes 1,129  99 

Interest    2,466  68 

The  company  obtained  in  the  process  of  putting  gas  in  holders 
certain  by-products  the  whole  of  which  sold  for  $6,783.26.  There 
was  manufactured,  i.  e.  put  into  the  gas  holders  50,000,000  cubic 
feet  of  gas ;  the  meters  registered  and  there  was  charged  to  con- 
sumers 46,000,000  cubic  feet  of  gas.  The  gas  remaining  in  the 
holders  at  the  beginning  and  ending  of  the  period  being  the  same 
in  cubic  feet. 

On  the  books  of  the  Gas  Co.  the  plant  and  distributing  system 
is  stated  in  the  following  accounts : 

Gas  works  (including  land  valued  at  $25,000)  .$250,000  oo 

Mains    100,000  oo 

Services    31,000  oo 

Meters     12,000  oo 

Tools  327  oo 

Furniture  and  fixtures    1,850  oo 

In  addition  to  which  the  Company's  books  show  store-room 
supplies  $9,341.00  and  accounts  receivable  $12,605  57- 

Assuming   the   correctness    of   all   the   charges   above,    do   the 


PRACTICAL  ACCOUNTING  n 

items   set   up   in   the   company's    statement   represent    the   elements 
of  cost? 

Prepare  a  detailed  cost  statement  that  you  would  consider 
correct,  giving  the  cost  per  thousand  cubic  feet  of  gas  in  trie 
holders,  and  whole  cost  of  manufacturing  gas  per  thousand  cubic 
feet.  Where  you  consider  it  necessary,  act  arbitrarily  in  building 
your  statement. 


CHICAGO,  MAY  3,  1904. 
(Time  6  Hours.) 

1.  At  the  close  of  its  fiscal  year,  December  3ist,  1902,  a  manu- 
facturing corporation  had  a  working  capital  of  $86,451.78  consist- 
ing of, — Cash  in   Bank  $5,200.00;   Accounts   and  Notes  Receivable 
$79,5i6.8o;  Stock  on  Hand  $30,483.20;  less  Unpaid  Labor  and  Ac- 
counts  Payable  $28,748.22.     During  the  year  1903  the  management 
erected  an  addition  to  its  main  factory  building  costing  $18,210.19 
and  installed  therein  machinery  and  equipment  costing  $16,309.27,   with 
additional   hand  tools  costing  $3,298.50.     After  inventorying  stock 
and  closing  the  books  to  December  31st,  1903,  a  dividend  of  $45,- 
ooo.oo  was  declared  out  of  net  profits  for  the  year  amounting  to 
$54,817.96.     The   company  was   obliged   to   borrow   money   to   pay 
the  dividend. 

Give  any  reasons  which  occur  to  you  as  to  why  the  loan  was 
necessary  and  the  propriety,  or  otherwise,  of  making  it. 

2.  A  railroad  company  known  as  "A"  leased  for  fifty  years 
the  property   of   a   smaller   railroad  company  known    as   "B"   and 
guaranteed  the  6  per  cent  coupons  on  the  latter's  bonds  and  their 
face  and  a  sinking  fund  against  them  of  I  per  cent  per  annum; 
each  yearly  installment  to  be  $30,000.00  in  cash  or  in  bonds  at  par 
of  "B".     After  the  lapse  of  twenty  years,  when  "B's"  bonds  were 
at  a  premium  of  18  per  cent,  "A"  was  found  to  be  in  arrears  on  the 
sinking  fund  for  five  installments  aggregating  $150,000.00.     In  set- 
tlement of  such  arrears  "A"  offers  to  pay  "B"  in  cash  such  sum  as 
would  make  "B"  whole,  the  same  as  if  no  lapses  in  payments  had 
occurred.     "B"  refuses  offer  and  proposes  "A"  shall  pay  into  the 
sinking  fund  $150,000.00  in  bonds.     During  the  five  years  money 
ruled  at  an  average  of  4  per  cent. 

Which  mode  of  settlement  would  be  the  better  for  "A". 

3.  A   corporation   organizes   under  the   laws   of  the   state  of 


12        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

New  Jersey  to  conduct  a  manuacturing  business,  with  an  authorized 
capital  stock  of  $1,000,000.00  divided  equally  between  preferred 
and  common.  Five  incorporators  each  subscribe  for  100  shares  of 
the  common  stock  of  a  face  value  of  $100.00  per  share.  John  Jones 
purchases  from  three  manufacturers  their  fully  equipped  plants 
for  $950,000.00  in  cash,  and  turns  over  the  said  three  plants  to  the 
newly  incorporated  company  for  the  $950,000.00  of  preferred  and 
common  stock  and  $400,000.00  of  first  mortgage  5  per  cent  bonds, 
out  of  a  total  issue  of  said  bonds  in  the  sum  of  $500,000.00;  leaving 
$100,000.00  of  said  bonds  in  the  company's  treasury. 

Prepare  opening  journal  entries  with  necessary  explanations  of 
the  transactions  and  a  statement  of  the  company's  condition  after 
having  acquired  the  three  plants. 

4.  The  co-partnership  of  Kimball,  Bagley  and  Pettey  find  they 
have  merchandise  on  hand  December  3ist,  1903,  that  cost  $8,724.00 
and  is  inventoried  by  them  at  a  10  per  cent  advance ;  they  also  have 
unexpired  premiums  on  insurance  amounting  to  $46.75,  and  accrued 
interest  on  notes  receivable  amounting  to  $232.40  not  entered  on  the 
books ;  and  owe  interest  on  note  for  $4,000.00  for  9  months  at  5  per 
cent,  payable  to  Wm.  C.  Bagley.  The  articles  of  co-partnership 
provide  that  4  per  cent  shall  be  paid  each  partner  on  his  investment, 
and  in  event  of  partners  drawing  for  personal  use  they  are  to  pay 
6  per  cent  for  such  money  so  drawn,  using  average  date.  Profits 
are  to  be  divided  in  the  following  proportion :  Jas.  H.  Kimball  45 
per  cent,  Wm.  C.  Bagley  32  per  cent,  Geo.  R.  Pettey  23  per  cent. 

The  trial  balance  of  the  firm  and  its  partner's  accounts  on  the 
books  are  as  follows: 

Dr.  Cr. 

Jas.  H.  Kimball,  Investment  Account $  12,675  oo 

Wm.  C.  Bagley  "  "      9,4io  15 

Geo.  R.  Pettey  "  "      8,01105 

Merchandise   $40,425  oo 

Expense  1,147  26 

Insurance    162  50 

Freight,   Cartage  and  Express 7,458  98 

Salaries   4,000  oo 

Clerk  Hire  2,250  oo 

Telegraph  and  Telephone  ................        311  44 


PRACTICAL  ACCOUNTING 


Accounts  Receivable   27,816  42 

Notes  Receivable   8,640  oo 

Notes  Payable  10,000  oo 

Accounts    Payable    2,692  65 

Interest  and  Discount 1,118  36 

Jas.  H.  Kimball  Drawing  Account 3,750  oo 

Wm.  C.  Bagley  "  "       1,000  oo 

Geo.  R.  Pettey  "  "       1,425  oo 

Returns  and  Allowances 1,186  79 

Sales  57,551  oo 

Cash    1,648  10 

$ioi,339  85       $101,339  85 

Jas.  H.  Kimball,  Drawing  Account:  DR.  CR. 

March  loth,  withdrew $    1,650  oo 

June  22nd,  "         1,725  oo 

July  I5th,  paid  in $3,ooo  oo 

October  ist,  withdrew 2,000  oo 

November  ist      "        1,000  oo 

December  29th     "        375  oo 

Wm.  C.  Bag  fey,  Drawing  Account: 

June  ist,  withdrew 2,000  oo 

September  2Oth,  withdrew 1,000  oo 

December  ist,  paid  in 4,000  oo 

Geo.  R.  Pettey,  Drawing  Account: 

April    ist,    withdrew 356  25 

July  ist  "         356  25 

October  ist        "        35625 

December  3ist,  "        356  25 

Prepare  from  the  foregoing  an  Income  Account  and  Balance 

Sheet. 

5.    The  general  ledger  of  a  County  Comptroller  at  the  close  of 

the  fiscal  year  shows  the  following  outstanding  balances : 

Debit  balances: 

General  Fund   $3,600,000  oo 

To  Balance  Bond  Liability 4,000,000  oo 

Cash   950,000  oo 

Due  from  Fee  Offices 250,000  oo 

Appropriation  Expenditures  , , 3,500,000  oo 


14        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

Credit  balances: 

Appropriation    3,600,000  oo 

Bonds,  Series  A 500,000  oo 

Bonds,  Series  B 750,000  oo 

Bonds,  Series  C 600,000  oo 

Bonds,  Series  D 1,500,000  oo 

Bonds,  Series  E 650,000  oo 

Bonds  and   Coupons  due  and  unpaid 30,00000 

Warrants  outstanding 559,ooo  oo 

Tavern   License   Fund 5,ooo  oo 

Laboratory    Fund    6,000  oo 

General  Tax  Income 2,000,000  oo 

Fee  Office  Income  1,600,000  oo 

Surplus    500,000  oo 

Prepare  journal  entries  closing  operations  for  the  year  and 
classified  balance  sheet  as  at  the  close  of  the  year. 

6.  The  administrator  of  a  will  received  $63,000  in  cash  to  be 
distributed  among  the  heirs  and  legatees  under  the  terms  of  the 
will,  as  follows : 

Sarah,  a  daughter  of  the  deceased,  after  payment  of  the 
legacies,  including  a  legacy  of  $1,000.00  to  herself,  was  to  receive 
was  to  receive  one-fifth  of  the  residue  of  the  estate. 

Jane,  a  daughter  of  the  deceased,  after  payment  of  the  legacies, 
was  to  receive  one-fifht  of  the  residue  of  the  estate. 

Anne,  a  daughter  of  the  deceased,  was  to  receive  the  same  as 
Jane. 

George,  a  son,  after  payment  of  the  legacies,  including  a  legacy 
of  $500.00  for  himself,  was  to  receive  one-fifth  of  the  residue  of 
the  estate. 

Three  children  of  a  deceased  son,  Jacob,  were  to  receive  lega- 
cies of  $500.00  each. 

Reuben,  a  son,  was  to  receive  one-fifth  interest  in  the  residue  of 
the  estate,  subject  to  the  payment  of  the  legacies  as  mentioned  and 
also  subject  to  legacies  of  $3,000.00  each  to  his  wife  and  three 
children. 

The  administrator  carried  out  the  terms  of  the  will. 

Open  the  books  of  the  administrator,  showing  receipt  of  the 
funds,  their  proper  distribution,  payment,  and  closing  entries. 


PRACTICAL  ACCOUNTING  IS 

CHICAGO,  Nov.   15,   1904. 
(Time  6  Hours) 

1.  The  books  of  a  manufacturing  corporation  at  the  close  of 
its  first  year's  business  show  sales  $241,863.50;  returns  and  allow- 
ances $18,416.38;  merchandise  cash  discounts  $13,943.87;  merchan- 
dise debit  balance  $69,346.92;  labor  $52,815.33;  fuel  $16,219.46;  shop 
expense   $9,247.50;   salaries  $16,214.30;   general   expenses  $8,342.35; 
advertising  $52,371.39;  traveling  expenses  $4,364.28;  insurance  and 
taxes   $6,250.00.     The   inventory   figures    up   a   total   of    $13,896.12, 
and  before  the  books  are  closed,  a  sufficient  sum  for  depreciation, 
namely  $5,000.00   is    written    off.     The   company   claims   that   con- 
servatively stated  its  net  profit  for  the  year  is  $18,142.10. 

Arrange  the  amounts  in  the  form  of  an  Income  Account,  and 
explain  fully  how  the  company  could  arrive  at  such  net  profit,  and 
give  reasons  therefor. 

2.  A  corporation  needing  some  additional  capital  for  a  short 
term  of  years,  issues  $300,000.00  of  debenture  bonds  carrying  6% 
interest,  and  payable  one-fifth  each  year  for  five  years.     Coupons 
are  attached  to  the  bonds  maturing  every  six  months ;  the  bonds  are 
sold  at  90  flat. 

What  average  rate  of  interest  does  the  company  pay  for  the 
money,  excluding  interest  on  interest? 

3.  Upon  the  death  of  a  retired  business  man  a  will  is  found 
conveying  real  and  personal  property  aggregating  $300,000.00  to  the 
widow  for  her  life,  and  upon  her  death  distributable  equally  among 
five  children  per  stirpes.     Among  the  decedent's  papers  is  found  a 
bond  and  mortgage  on  a  piece  of  real  estate  owned  by  a  previous 
deceased  wife,  and  sold  by  the  decedent  as  special  guardian  of  her 
two  children,  Henry  and  Emma,  both  of  age  at  father's  death,  who 
had  never  heard  of  their  mother's  estate,  or  had  any  accounting  of  it. 
The  bond  and  mortgage  amounting  to  $10,000.00  was  taken  in  part 
payment  for  such  real  estate,  the  whole  price  realized  having  been 
$20,000.00.     The   decedent   died   in  June,   1900,   and  the  deceased's 
wife's   real  estate  was  sold  in  June  1890.     The  bond  carried  6% 
interest,  payable  semi-annually  on  the  1st  day  of  June  and  the  ist 
of  December,  and  all  such  payments  on  the  bond  had  been  made. 

Prepare  a  statement  showing  what  would  accrue  to  each  of 
four  children  then  living  at  the  death  of  the  widow  including 


16       ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

the  amounts  to  which  Henry  and  Emma  would  be  entitled  on 
account  of  their  mother's  estate.  Exclude  and  do  not  consider 
any  accrued  income  of  the  estate  unexpended. 

4  On  February  20,  1903,  the  Board  of  Commissioners  for  a 
cercain  county  met  for  the  purpose  of  preparing  the  annual  gudgct 
of  the  appropriation  bill  for  the  year  1903,  said  appropriation  to  be 
based  upon  the  estimated  receipts  for  the  year,  as  compiled  by  the 
comptroller.  Estimated  receipts  and  appropriations  are  as  follows : 
ESTIMATED  RECEIPTS 

Cash  on  hand $   800,000  oo 

Net  income  from  tax  levy 4,000,000  oo 

Income    from    fee    offices 2,400,00000 


Total  Estimated  Receipts   $7,200,000  oo 

APPROPRIATIONS 

Principal   of   and   interest   on  bonds $   800,00000 

Salaries    3,800,000  oo 

Supplies  1,300,000  oo 

Jurors'  fees    400,000  oo 

Election    purposes     300,000  oo 

Old  liabilities    60,000  oo 

Buildings  140,000  oo 

Contingent    400,000  oo 


Total  Appropriations   $7,200,000  oo 

Prepare  journal  entries  placing  apropriations  on  books.  The 
estimated  receipts  were  relaized,  except  in  the  item  of  Fee  Offices, 
where  only  $2,350,000.00  was  earned.  The  entire  appropriation  was 
expended.  Prepare  journal  entries,  trial  balance,  and  balance 
sheet,  recording  the  results. 

5.  The  Universal  Cash  Register  Company  with  an  authorized 
capital  of  $10,000,000.00,  of  which  $5,000,000.00  has  been  issued  at 
80  cents  on  the  dollar  is  engaged  in  the  manufacture  of  cash  regis- 
ters, and  supplies  pertaining  thereto.  The  sale  of  these  cash  regis- 
ters, etc.,  is  accomplished  by  means  of  a  large  number  of  branch 
houses  and  agencies,  and  all  goods  shipped  by  the  factory  to  these 
branch  houses,  etc.,  are  put  on  consignment  account  at  list  prices. 
In  addition  to  the  sale  of  new  cash  registers,  they  also  sell  a  large 
quantity  of  second-hand  registers,  which  they  have  obtained  by 


PRACTICAL  ACCOUNTING  17 

taking  second-hand  registers  in  part  payment  of  new  registers. 
These  second-hand  registers  are  also  put  on  consignment  account, 
but  not  at  list  prices,  but  at  actual  cost  to  the  Company;  the  reason 
for  this  procedure  being  that  they  have  no  fixed  selling  price  for 
second-hand  machines,  their  branch  house  managers  and  agents 
being  authorized  to  sell  them  at  as  high  a  figure  as  they  can  get, 
but  on  no  account  to  allow  themselves  to  become  over-stocked  with 
them.  It  often  happens  that,  on  receiving  the  second-hand  register 
at  a  branch,  it  is  found  advisable  to  ship  same  to  the  factory,  so 
that  certain  repairs  may  be  effected  to  put  it  in  saleable  condition. 
When  these  repairs  are  completed,  the  second-hand  register  may 
be  shipped  to  some  entirely  different  point  from  which  it  originally 
came. 

Branch  house  managers  are  paid  a  fixed  salary,  but  attached  to 
each  branch  house  are  a  number  of  salesmen  who  receive  no  salary, 
but  are  paid  on  a  purely  commission  basis,  and  on  the  same  terms 
as  those  given  to  agents.  For  the  purpose  of  this  question  it  will 
be  assumed  that  no  register  is  ever  sold  without  a  commission  be- 
ing paid  to  a  salesman  or  agent,  and  on  the  sale  of  every  new 
register  the  rate  of  commission  is  thirty  (30)  per  cent.  But  when 
a  second-hand  machine  is  accepted  in  part  payment  of  a  new 
register,  the  salesman  or  agent  only  receives  twenty  (20)  per  cent 
of  the  net  amount  that  will  be  received  in  cash  and  notes  from  the 
customer.  On  sales  of  second-hand  machines  a  commission  of 
twenty  per  cent  is  paid.  The  terms  to  customers  are  25%  cash, 
and  the  balance  in  ten  equal  monthly  installments,  a  separate  note 
being  given  for  each  installment.  Upon  failure  of  a  purchaser  to 
pay  any  part  of  the  purchase  price,  the  register  is  pulled  (that  is, 
taken  out  and  returned  to  the  agency  or  branch  house  selling  same), 
and  the  agent  or  salesman  then  only  receives  a  pro-rate  amount 
of  his  commission,  the  actual  cash  collected  being  the  basis  of  his 
commission.  The  money  that  has  been  paid  in  on  account  of  a 
register  which  is  pulled  is  clear  profit,  barring  any  legal  expense 
in  conection  with  same,  and  the  customer's  open  account  or  notes 
receivable  account  is  closed  out  by  a  transfer  to  an  account  termed 
"Retained  Payments."  The  branch  houses  and  agents  keep  no 
accounts,  all  acounts  and  collections  being  attended  to  at  the  head 
office.  Amongst  others,  the  following  accounts  are  kept  on  the 
c-cneral  books: 


i8  ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

New  Register  Consigned  Stock  Acount  (always  debit  balance). 

New  Register  Consignment  Acocunt  (always  credit  balance, 
and  offsetting  balance  of  Consigned  Stock  Acount). 

Second-hand  Consigned  Stock  Account. 

Second-hand  Consignment  Account. 

New  Register  Sales  Account. 

Second-hand  Register  Sales  Account. 

New  Register  Commission  Account. 

Second-hand  Register  Commission  Account. 

Notes  Receivable  Ledger  Account. 

Customers  Ledger  Account. 

Second-hand  Register  Cost  Acount. 

Agent  and  Salesman's  Commission  Ledger  Account. 

Retained  Payments. 

As  a  check  upon  the  New  Register  Commission  Account,  a 
rule  is  laid  down  that  in  all  sales  of  new  registers,  whether  a  sec- 
ond-hand register  be  accepted  in  part  payment  or  not,  the  New 
Register  Commission  Account  must  be  charged  with  30%  of  the 
list  price  of  register  sold. 

Draw  up  journal  entries  for  the  following  transactions : 

(a)  Herbert  Davison,  a  salesman  in  the  Chicago  branch,  sells 
a  new  Cash  Register  to  the  Madison  Restaurant  Company,  having 
a  list  price  of  $240.00.     The  restaurant  company  one  month  after 
delivery  of  the  register  pays  cash  of  $60.00,  and  gives  ten  install- 
ment notes  of  $18.00  each,  the  first  one  due  one  month  after  date, 
the  second  two  months  after  date,  and  so  on.     After  meeting  the 
first   five  notes,  the  Madison   Restaurant  Company  becomes  bank- 
rupt, and  the  Universal  Cash  Register  Company  pulls  the  register. 
Show  all  of  the  entries  necessitated  by  the  above  transactions,  in- 
cluding commissions  to  salesman. 

(b)  Thomas   Smith,  an  agent   for  the  company,   sells  a  cash 
register  to  Herbert  Findlay  for  $350.00,  and  takes  in  part  payment 
a  second-hand  register  at  $50.00.     After  delivery  of  the  new  regis- 
ter to  Herbert  Findlay  and  the  receipt  at  the  factory  of  the  second- 
hand register,  a  settlement  of  the  account  is  effected  by  a  cash  pay- 
ment of  $75.00  and  the  acceptance  by  the  Company  of  ten  install- 
ment notes  of  $22.50  each  made  by  Herbert  Findlay.     The  latter 
pays  the  first  two  notes,  but  fails  to  make  any  more  payments  on 
the  other  notes.    The  register  is,  therefore,  pulled.    Show  all  of  the 


PRACTICAL  ACCOUNTING  19 

entries  necessitated  by  the  above  transactions,  including  commis- 
sion to  Thomas  Smith,  the  agent. 

(c)  The  second-hand  register  returned  to  the  factory  and  re- 
ferred to  in  the  last  question  has  repairs  put  upon  it  costing  $25.00, 
and  it  is  then  shipped  to  the  New  York  Branch  and  consigned  to 
them  at  the  actual  cost  to  the  Universal  Cash  Register  Company 
up  to  that  time.  A  salesman,  Edgar  Robinson,  sells  the  register 
to  Abner  Johnson  for  $100.00,  and  the  latter  settles  for  same  by 
paying  cash  down.  Show  all  of  the  entries  necessitated  by  the  above 
transaction  including  commission  to  Edgar  Robinson,  and  also  state 
what  profit  the  Company  made  on  this  register,  and  how  you  ar- 
rive at  same. 

6.  The  shareholders  of  a  company  with  bonds  outstanding  of 
$500,000.00  bearing  interest  at  5%  per  annum,  resolve  to  provide  for 
paying  off  the  same  when  they  fall  due  on  December  3ist,  1912, 
by  investing  $50,000.00  per  annum  out  of  the  profits  and  allowing 
the  same  to  accumulate  with  interest;  this  arrangement  to  com- 
mence with  the  balance-sheet  for  the  year  ending  December  3ist, 
1904.  Show  the  "Bond  Redemption  Account"  on  December  3ist, 
1908,  on  the  assumption  that  on  December  3ist,  1904,  and  on  the 
same  day  in  each  year  following,  the  $50,000.00  referred  to  was 
invested  in  4  per  cent  Railroad  Bonds  at  par,  that  the  interest 
thereon  to  June  3Oth  and  December  3ist  in  each  year  was  re- 
ceived in  July  and  January  following,  and  was  allowed  to  accumu- 
late in  the  bank  until  the  3Oth  June  and  3ist  December  following, 
when  it  was  invested  in  the  same  class  of  securities  at  the  same 
price  in  multiples  of  $1,000.00. 


CHICAGO,  MAY  9,  1905. 
(Time  6  Hours.) 

1.  A  corporation  is  burned  out  of  its  factory,  and  leases  other 
property  for  long  term  of  years,  at  an  annual  rental  of  $6,000.00. 
Subsequently   the   owner   of   the   property   donates   $5,000   in   cash 
to  apply  on  cost  of  fitting  up  the  building  for  the  tenant's  use. 

Make   journal   entries   covering   the   donation  and   explain   its 
treatment. 

2.  A  corporation  formed  to  acquire  and  hold  the  capital  stock 


20        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

of  four  manufacturing  companies.  In  addition  to  the  investments 
it  is  desired  to  carry  controlling  accounts  with  each  subsidiary 
company  on  the  books  of  the  holding  company. 

Make  form  of  journal  entries  for  investments,  and  controlling 
entries  necessary  at  the  close  of  the  first  year. 

3.  The  "A"  corporation  to  prevent  injurious  competition  pur- 
chases from  the  "B"  corporation,  a  competing  firm,  the  whole  of 
its  business  as  a  going  concern  on  January  I,  1905,  for  $500,000.00 
subject^  however,  to  certain  conditions  stated  below. 

The  "B"  corporation  agrees  to  continue  trading  under  its  old 
management  on  behalf  of  and  at  the  expense  of  the  "A"  corpora- 
tion until  December  31,  1905,  when  if  the  profits  earned  amount  to 
less  than  $40,000.00  the  "A"  corporation  reserves  to  itself  the  right 
to  cancel  the  agreement  for  purchase  on  payment  of  the  difference 
between  the  earnings  for  the  year  and  $40,000. 

At  December  31,  1905,  the  profits  for  the  year  earned  by  the 
"B"  corporation  amount  to  $50,000,  and  the  "A"  corporation 
actually  takes  over  the  "B"  croporation,  paying  $450,000  in  full 
settlement. 

Criticise  the  following  methods  of  treating  the  transaction,  and 
state  which  you  consider  correct,  giving  reasons  for  your  opinion : 

(a)  Debit  Investment  Account  with  $500,000  and  credit  Profit 
and  Loss  with  $50,000  earnings. 

(b)  Debit    Investment   Account   with   $450,000. 

(c)  Debit  Investment  Account  with  $500,000.00  and  credit  Spe- 
cial Reserve  Account  with  $50,000. 

It  may  be  taken  as  an  ascertained  fact  that  the  assets  are 
fully  worth  $500,000  at  the  time  of  purchase  by  the  "A"  corporation. 

4.  A  Share  and  Investment  Corporation  promoted  a  subsidiary 
corporation,   and   on   January   i,    1905,   subscribe   $30,000  worth   of 
stock  receiving  also  $70,000  stock  as   consideration    for   their  ser- 
vices as  promoted.     Their  promotion  expenses  amounted  to  $500. 
Sales  of  their  holding  in  the  subsidiary  corporation  are  made  as 
follows : 

Stock  Price  Realized 

February   $  5,000  oo  $1,000  oo 

March    10,000  oo  2,500  oo 

April     10,000  oo  3,ooo  oo 

May 10,000  oo  5,500  oo 


PRACTICAL  ACCOUNTING  21 

June    10,000  oo  7,5oo  oo 

October    5,ooo  oo  1,500  oo 

At  December  31,  1905,  the  parent  corporation's  financial  3rear 
closes,  at  which  date  they  hold  a  balance  of  $50,000  stock,  the 
current  market  price  being  $25  per  $100  stock. 

Give  detailed  ledger  account,  bringing  down  the  balance  at 
the  figure  at  which  it  should  be  shown  on  the  balance  sheet,  and 
assign  your  reasons  for  the  valuation  you  place  upon  it. 

5.  Two  banks,   we  will  designate  as  A  and  B  have  decided 
to    consolidate.      Statements    of    the    condition    of    the   two    banks 
at    the    time    of    liquidation    and    proposed    consolidation    are    as 
follows : 

BANK  A. 
Assets    : $1,000,000  oo 

LIABILITIES. 

Capital   stock $  600,000  oo 

Surplus    400,000  oo 

BANK  B. 
Assets    $  400,000  oo 

LIABILITIES. 

Capital  stock    $   300,000  oo 

Surplus    100,000  oo 

The  earnings  have  been,  practically,  for  a  number  of  years: 
A,  $50,000  per  year;  B,  $30,000  per  year. 

The  new  organization  is  to  be  capitalized  at  $1,000,000,  viz. : 
$800,000  capital  stock,  and  $200,000  surplus. 

It  has  been  proposed  that  the  stock  holders  of  the  two  banks 
pay  in  for  holdings  in  the  new  bank,  as  follows : 

Bank  A,  ^  of  stock  and  surplus ;  Bank  B,  y%  of  stock  and  sur- 
plus. In  considering  this  proposal,  objections  were  raised  on  the 
ground  that  it  was  not  equitable.  Who  are  the  probable  objectors, 
and  what  would  be  the  equitable  allotment  of  stock,  and  the 
amount  that  each  should  pay  into  surplus? 

Explain  and  prepare  opening  balance  sheet  showing  capital  stock 
in  separate  allotments,  and  likewise  the  payments  into  surplus. 

6.  A   syndicate  having  invested  in  a  coal  property,  presents 
the  following  balance  sheet: 


22        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

ASSETS. 

Acreage    $1,500,000  oo 

Physical  equipment 500,000  oo 

LIABILITIES. 

Capital  stock   $1,000,000  oo 

Bonds,   ist  Mtg.,  5s 1,000,000  oo 

The  syndicate  estimates  it  will  mine  and  sell  1,250,000  tons 
per  year,  and  the  life  of  the  mines  at  this  rate  will  be  25  years. 

The  surface  acreage  is  not  marketable. 

It  will  require  $50,000  expended  annually  in  additional  equip- 
ment. This  physical  equiment  will  carry  chily  a  small  salvage  value 
at  the  expiration  of  25  years. 

The  bonds  are  to  be  called  at  the  rate  of  $40,000  per  annum. 

At  what  profit  per  ton  must  the  coal  be  sold,  so  that  a  divi- 
dend of  seven  per  cent,  can  be  paid  yearly  on  the  stock,  and  leave 
at  the  close  of  business  25  ye#rs  hence,  sufficient  convertible  assets 
to  pay  the  stock  holders  in  cash,  the  par  value  of  their  stock? 
Explain. 

Make  a  statement  winding  up  the  syndicate's  affairs,  assuming 
the  general  correctness  of  the  estimates. 


CHICAGO,  MAY  7,  1906. 
(Time  6  Hours.) 

i.  In  connection  with  your  general  merchandise  business,  you 
are  a  managing  partner  on  a  joint  account,  where  your  one-half 
of  merchandise  cost  was  $15,000.00.  Charges  posted  $150.00; 
Total  Sales  $8,000.00,  and  Joint  Unsold  Merchandise  $13,500.00. 
Settlement  charges  were:  Storage  $60.00;  Commission  5%  on  Sales. 

Prepare  ledger  account,  and  show  journal  entries  closing  the 
account  on  your  books,  you  giving  your  partner,  Robert  Bailey, 
your  note  for  his  one-half  of  net  proceeds. 

Suppose  your  one-half  first  cost  was  $10,000.00.  Charges  were 
$9,000;  Sales  $4,500.00;  Storage  $20.00;  Joint  Property  unsold  $2,- 
100.00;  Commission  5%. 

Prepare  ledger  account,  and  show  journal  entries  closing  the 
account  on  your  books,  charging  Bailey  with  his  share  of  the 
deficiency. 


PRACTICAL  ACCOUNTING  23 

2.  A  branch  office  business  was  started  the  first  of  the  year, 
the    head    office   advancing  $5,000.00   cash.     During   the   first   year 
merchandise  was  shipped  to  branch,  invoiced  at  $75,000.00. 

An  auditor  checking  up  the  business  at  the  close  of  the  year, 
finds  the  following: 

Merchandise  sales  were  $60,000.00^  with  selling  price  of  goods 
20%  advance  on  invoice. 

Proper  vouchers  were  on  file  duly  receipted  for  following 
payments : 

Rebates  and  allowances  on  damaged  goods. $  1,500  oo 

Salaries   and   other   expenses 4,50000 

Freights    2,500  oo 

The  books  also  showed: 

Remittances  to  head  office $35,ooo  oo 

Uncollected  accounts 15,000  oo 

the  balance  of  the  sales  having  been  realized  in  cash,  less  rebates 
and  allowances  as  noted. 

The  cash  on  hand  and  inventory  of  unsold  goods,  together 
with  the  foregoing  records,  properly  account  for  everything. 

Prepare  statement,  such  as  an  auditor  would  make  in  report- 
ing to  the  head  office,  balancing  the  business  of  the  branch  house. 

3.  John    Smith    dies   on   October   15,    1901,   leaving  a  will   in 
which  he  names   certain  legacies,  which,  in  the  aggregate  amount 
to  $50,000.00.     The  executors  are  then  instructed   (i)   to  use  their 
best  judgment  in  the  disposition  of  such  assets  as  may  be  necessary 
to  liquidate  all  his  liabilities;   (2)  to  pay  to  his  widow  Mrs.  Sarah 
Smith  an  allowance  at  the  rate  of  $8,000.00  per  annum   from  the 
date  of  his  death  to  the   date  of  the  distribution  of  the  residue 
of  his  estate;  and  (3)  to  distribute  the  residue  of  the  estate  after 
all    claims    and    legacies    have   been    met,    as    follows:      l/3    to    his 
widow  and  ^  to  certain  trustees  named  in  the  will. 

After  his  death  the  executors  drew  up  an  inventory  of  the 
estate,  which,  upon  being  appraised,  show  the  following  condition : 

ASSETS. 

Real    Estate $589,000  oo 

Corporation  Stock 320,000  oo   . 

Bonds    with    premium    added    460,92800 

Bills   Receivable    3,482  oo 


24        ILLINOIS  EXAMINATION  IN  ACCOUNTANCY 

Land  Contracts   37,5oo  oo 

Interest    Accrued    on    Bonds,    Bills    Receiv- 
able and  Land  Contracts 7,890  oo 

Accounts  Receivable 2,000  oo 

Cash 29,000  oo 

LIABILITIES. 
Mortgage   on  Improved  City   Real  Estate.. $  50,000  oo 

Bills   Payable    1 50,000  oo 

Accounts  Payable 1,980  oo 

Funeral  Expenses  1,000  oo 

Interest  Accrued  on  Demand  Notes 1,200  oo 

Six  months  after  the  inventory  has  been  filed  it  develops  that 
John  Smith  had  endorsed  the  note  of  Joseph  Stevens  for  $15  ooo.oo, 
and  had  discounted  same  with  his  bankers.  Upon  the  note  coming 
due,  Joseph  Stevens  failed  to  meet  same.  The  bank  filed  a  claim 
against  the  estate  of  John  Smith  for  the  amount,  which  was  duly 
paid  by  the  executors. 

It  is,  however,  believed  that  in  a  course  of  time  this  note  of 
Joseph  Stevens  can  be  realized  upon.  One  year  exactly  after  the 
death  of  John  Smith,  the  executors  distribute  the  residue  of  the 
estate,  and  close  the  books.  The  following  transactions  in  addition 
to  those  enumerated  or  suggested  above,  have  taken  place  during 
the  year. 

75   Bonds    Par  $1,000.00  and  inventoried   at    no  were 

sold  at  108^4. 
300  Shares  Par  $100.00  and  inventoried  at  85  were  sold 

at  90. 
400  Shares  Par  $100.00  and  inventoried  at  90  were  sold 

at  an  increase  of  10%  of  their  inventory  valuation. 
The  Real  Estate  which  was  encumbered  by  a  mortgage 
of   $50,000.00   was   sold   by   consent   of   the    Probate 
Court   and   of   the  widow    for   a  sum   of  $35,000.00 
in  excess  of  the  mortgage,  the  purchaser  assuming 
the  mortgage. 
The  profits  arise  from  the   following  sources : 

Dividends  $15,000  oo 

Interest  on  Bonds 18,500  oo 

Interest  on  Bills  Receivable  and  Land  Con- 
tracts       2,400  oo 

Net  Rentals  after  paying  Taxes,  etc 9,000  oo 


PRACTICAL  ACCOUNTING  25 

The  charges  consist  of  the  following  items: 

Office  Expenses   5,ooo  oo 

Interest  on  Mortgage  and  Bills  Payable 4,750  oo 

Premium  on  Bonds  written  off 2,000  oo 

Executors'  Fees  allowed  by  Court 15,000  oo 

The  accrued  interest  on  bonds,  bills  receivable  and  land  con- 
tracts at  the  close  of  the  executor's  term  of  office  is  found  to 
amount  to  $6,100.00. 

Set  up  journal  and  cash  book  entries  and  ledger  account,  and 
prepare  suitable  summarized  statement  of  executor's  transactions 
for  presentation  to  the  beneficiaries. 

4.  A  manufacturing  company  that  had  been  in  business  for  a 
number  of  years,  began  operations  the  first  of  a  certain  year 
in  an  entirely  new  plant,  built  to  last  20  years,  the  building  of 
which  was  made  necessary  by  wear  and  tear  and  obsolescence 
affecting  the  old  plant.  The  new  equipment  cost  $200,000.00,  for 
which  the  company  issued  10  obligations  of  $20,000.00  each  at  6%, 
maturing  the  first  of  each  year  following  the  date  of  their  occu- 
pancy of  the  new  plant.  The  old  plant  has  been  disposed  of  at  a 
scrap  value  of  $10,000.00  when  it  was  vacated,  at  which  time  the 
balance  sheet  of  the  company  showed : 

ASSETS. 

Plant $  225,000  oo 

Less  scrap  value  10,000  oo    $  215,000  oo 

Other  Assets  80,000  oo 

$295,000  oo 

LIABILITIES. 

Capital  Stock  $  200,000  oo 

Surplus   50,000  oo 

Profit  and  Loss 25,000  oo 

Gross  Sales   for  year $  100,000  oo 

Less    Operating  Expenses    75,ooo  oo 

Floating  Debt 20,000  oo 

$295,000  oo 


26        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

The  new  plant  was  at  once  added  to  the  asset  values  at  $200,- 
ooo.oo,  and  the  company's  liability  on  its  obligations  shown  for  the 
same  amount. 

Owing  to  competition  and  limited  use  of  the  products,  the  sales 
have  been  uniform  for  a  number  of  years,  and  could  not  be  ex- 
pected to  increase,  but  the  new  and  improved  machinery,  with 
better  methods  of  manufacture,  saves  10%  in  operating  expenses 
(including  therein  6%  interest  on  the  borrowed  money)  by  their 
method  of  accounting. 

The  books  have  shown  a  net  earning  of  $25,000.00  per  year,  as 
follows : 

Gross  Sales $100,000  oo 

Operating  Expenses : 

Manufacturing  Expenses 


Repairs 

Selling 

•  General 


75,000  oo 


Taxes 

Insurance 

Ground  Lease  Rentals 

Net $  25,000  oo 

At  the  close  of  the  first  year's  operations  of  the  new  plant,  the 
balance  sheet  showed  as  follows: 

ASSETS 

Plant   $415,000  oo 

Other    Assets    1 12,500  oo 


$527,500  oo 
LIABILITIES 

Capital    Stock $200,000  oo 

Surplus     75,ooo  oo 

Profit  and  Loss    32,500  oo 

Sales  for  year  $100,000  oo 

Less  Operating  Expenses  67,500  oo 


Notes    Payable    200,000  oo 

Floating   Debt    I .- .     20,000  oo 

$527,500  oo 


PRACTICAL  ACCOUNTING  27 

The  balance  sheet  is  submitted,  and  a  dividend  declared. 

Discuss  all  the  foregoing,  and  illustrate  your  conclusions,  and 
draw  up  statement  showing  what,  in  your  opinion,  is  the  true  con- 
dition of  the  company. 

5.  Two  printing  and  stationery  houses  decided  to  combine  their 
businesses  for  the  purpose  of  reducing  expenses.  An  accountant  is 
called  in  to  examine  the  books  of  each  company  and  to  report  upon 
the  financial  condition  of  each  and  also  upon  the  past  profits. 
Owing  to  the  fact  that  corporation  A  has  never  separated  its  pur- 
chases as  between  its  retail  and  its  manufacturing  department,  he 
finds  it  impossible  to  prepare  a  combined  profit  and  loss  account 
showing  the  gross  profit  of  the  retail  departments  and  the  manu- 
facturing departments  of  each  company.  The  following  state- 
ment, however,  exhibits  a  summary  of  their  combined  trading 
accounts : 

Total  Sales   $372,000  oo 

Cost  of  Materials  in  Goods  Sold $185,000  oo 

Manufacturing  Labor 64,000  oo         249,000  oo 


Gross  Profit   $123,000  oo 

Less  Total  Expenses 93,ooo  oo 


Net  Profit  . . , $  30,000  oo 


The  amalgamation  is  effected,  and  after  carrying  on  the  busi- 
ness for  twelve  months  an  inventory  is  taken  "and  the  books  closed 
It  is  found  that  instead  of  realizing  a  profit  of  $30,000.00,  they  have 
only  made  a  profit  of  $14,000. 

An  analysis  of  the  various  accounts,  made  by  their  accountant, 
showed  the  following  summarized  statement : 
RETAIL   DEPARTMENT. 

Total   Sales $176,000  oo 

Less  Cost  of  Merchandise 119,000  oo 


Gross  Profits  Retail  Department  $57,ooo  oo 

MANUFACTURING  DEPARTMENT. 

Total  Sales   $181,000  oo 

Less  Cost  of  Material  in  Mdse.  .$64,000  oo 

Less  Cost  Manufacturing  Labor.  63,000  oo  127,000  oo 


28        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 
Gross  Profits  Manufacturing  Dep't 54,00000 


$111,000  oo 
Less  Expenses   97,000  oo 


$  14,000  oo 


As  a  basis  of  comparison  with  the  former  year's  results,  the 
percentages  of  corporation  B  in  respect  to  their  retail  department 
and  manufacturing  department,  may  be  accepted  as  applying  to 
the  whole  of  that  year's  results  of  the  combined  companies.  These 
percentages  were  as  follows : 

RETAIL  DEPARTMENT. 
Sales   100.0% 

Cost  of  Merchandise 70.5% 

Gross  Profit 29 . 5% 


100.0% 

MANUFACTURING  DEPARTMENT. 
Sales    100.0% 

Cost  of  Material  in  Merchandise 30.0% 

Cost  of  Manufacturing  Labor 35-5% 


65.5% 
Gross  Profit 34-5% 

From  the  above  information  work  out  by  percentages  and 
show  the  causes  affecting  the  reduction  in  profits  from  $30,000  to 
$14,000. 

6.  On  the  3ist  of  December,  1905,  the  books  of  the  A  and  B 
Co.  showed  the  following  Trial  Balance  before  making  closing 
entries : 

Inventory,  Jan.  ist,  1905 $  125,000  oo 

Sales    $1,280,658  oo 

Cash  on  hand  and  in  Bank 75,120  oo 

Petty  Cash  Account 27  oo 

Purchases   820,500  oo 

Returns    5,315  oo 


PRACTICAL  ACCOUNTING  29 

Goods   on   Consignment  with 
European  Agents  at  selling 

prices    $  17,000  oo 

Freight,    Insurance    and    Ex- 
penses on  same 1,500  oo 

18,500  oo 

Salaries    12,600  oo 

Wages  ^ 135,418  oo 

Rent  and  Taxes  19,820  oo 

Factory   Expenses    64,582  oo 

Accounts  Receivable  (Subject  to  5%  Dis- 
count at  one  month) 400,625  oo 

Accounts    Payable    (Subject   to   2%    Dis- 
count at  one  month) 85,200  oo 

Bills  Payable   -  25,000  oo 

Furniture  and  Fixtures 26,000  oo 

Premiums    paid    on    purchase    of    Lease 
(Lease     acquired     January     ist,     1905, 

expires  Dec.  3ist,  1914) 29,500  oo 

Miscellaneous    Expenses 27,825  oo 

Surplus  as  at  Jan.  ist,  1905 133,920  oo 

3000  Shares  in  the  "O.  K."  Company  at 

cost)   300,000  oo 

Capital   Stock    500,000  oo 

Dividends  on  Investments  36,000  oo 


$2,060,805  oo    $2,060,805  oo 

Prepare  Profit  and  Loss  Account  and  Balance  Sheet  after 
taking  into  consideration  the  following  matters  and  making  any 
adjustments  in  the  accounts  which  you  consider  advisable: 

The  inventory  of  merchandise  on  hand  Dec.  31,  1906,  amounts 
to  $117,850.00.  The  amount  of  bills  payable,  $25,000.00,  falls  due 
March  3ist,  1906,  and  was  discounted  Oct.  ist,  1905,  $625.00  being 
charged  to  miscellaneous  expenses  for  discount  as  at  that  date. 

The  last  divident  on  the  "O.  K."  company  stock  was  received 
in  May,  1905,  and  was  at  the  rate  of  6%  for  the  year  ending 
April  30,  1905. 


30       ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

CHICAGO,  MAY  6,  1907. 
(Time  6  Hours.) 

i.  As  on  January  ist  1890,  a  corporation  is  formed  for  the 
purpose  of  acquiring  and  conducting  a  cemetery,  and  starts  busi- 
ness on  that  date  with  a  capital  stock  of  $100,000.00  paid  for  in 
cash.  The  company  first  purchases  forty  acres  of  land  within  easy 
access  of  a  large  city,  paying  for  same  at  the  rate  of  $1,000 
per  acre.  It  proceeds  to  expend  considerable  sums  of  money  in 
the  purchase  and  planting  of  trees  and  shrubs,  laying  out  drives  and 
pathways,  sodding,  building  of  glass  houses,  etc.  The  policy  of 
the  company  is  to  withhold  the  selling  of  burial  lots  until  after 
January  ist,  1900,  so  as  to  allow  the  trees  and  shrubs  to  become  more 
fully  grown  and  in  the  expectation  that  with  the  growth  of  the 
city  their  property  will  become  more  valuable.  In  the  year  1900 
the  company  commences  selling  burial  lots,  and  all  are  sold  under  a 
special  provision  whereby  the  company  agrees  to  apply  fifty  per 
cent  of  all  cash  received  on  sales  in  the  purchase  of  four  per  cent 
bonds  until  a  total  of  $150,000.00  of  such  bonds  shall  have  been  so 
purchased.  The  agreement  further  provides  that  after  all  lots 
have  been  sold  the  company  will  wind  up  its  affairs  and  the  above 
bonds  until  a  total  of  $150,000.00  of  such  bonds  shall  have  teen  so 
shall  use  the  income  of  such  bonds  for  keeping  up  the  cemetery. 
It  is  the  custom  of  the  company  not  to  purchase  bonds  until  after 
the  close  of  each  fiscal  year  and  after  the  total  sales  of  that  year 
have  been  determined. 

In  March,  1905,  the  directors  of  the  company  find  that,  while 
they  believe  the  books  to  be  in  balance,  no  proper  entries  have 
been  recorded  showing  total  cost  of  their  investment,  and  'that 
no  entries  have  been  made  with  respect  to  the  fund  of  $150,- 
ooo.oo  from  which  said  bonds  are  to  be  purchased.  While  cash 
dividends  have  been  declared  and  paid,  the  directors  are  in  ig- 
norance of  what  their  profits  actually  have  been  and  how  much 
of  the  dividends  so  received  have  been  out  of  their  profits  and 
how  much  in  the  nature  of  liquidating  dividends,  representing 
a  return  of  their  original  investment.  They,  therefore,  employ 
a  certified  public  accountant  to  determine  all  these  matters  and 
to  make  the  necessary  entries  on  their  books  and  render  report 
to  them.  After  determining  the  clerical  accuracy  of  the  books 
the  accountant  draws  off  the  two  trial  balances  given  below 
and  from  them  prepares  the  necessary  entries  and  obtains  the 
information  required  by  the  directors. 


PRACTICAL  ACCOUNTING 

TRIAL  BALANCES. 
DEBITS  :  Jan.  I,  1900 

Real  estate  $  40,000  oo 

Improvements    45,ooo  oo 

Bonds 

Administration  expense 20,000  oo 

Upkeep  of  cemetery 

Dividends  paid   

Cash   7,000  oo 


$112,000  oo 


Jan.  i,  1905 

$  40,000  oo 

45,000  oo 

125,000  oo 

46,000  oo 

45,000  oo 

130,000  oo 

40,800  oo 

471,800  oo 


CREDITS  : 

Interest  account  representing  inter- 
est at  4  per  cent  on  unexpended 
cash  during  development  period..  $  12,000  oo 

Bond  interest  account 

Sale  of  lots 

Capital  stock  100,000  oo 


$112,000  oo 


$  12,000  oo 

9,800  oo 

350,000  oo 

100,000  oo 

$471,800  oo 


An  inventory  of  their  unsold  lots  as  on  January  -,  1905, 
shows  that  they  have  ten  acres  left  unsold  of  equally  desirable 
character  with  that  already  sold.  Draw  up  entries,  prepare  profit 
and  loss  account  for  period  and  balance  sheet  as  on  January  ist, 
1905,  in  same  manner  as  if  you  had  been  the  accountant  engaged. 
In  any  interest  calculation  use  four  per  cent  simple  interest. 

2.  Three-fourths  of  the  capital  stock  of  Company  A  and 
two-thirds  of  the  capital  stock  of  Company  B  is  owned  by  the 
holding  Company  C.  Company  C  purchased  the  above  stock  of 
Company  A  at  $150  in  February,  1905,  on  the  basis  of  the  bal- 
ance sheet  given  below,  dated  January  I,  1905 : 

ASSETS. 

Real    estate,    plant,    machinery,    etc $100,000 

Inventory  merchandise 100,000 

Accounts  and  bills  receivable • .     75,000 

Cash    25,000 


$300,000 


32        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

LlABIITIES. 

Capital   stock    $i  50,000 

Bills  payable 75,ooo 

Surplus   75>ooo 

$300,000 

During  the  year  1905  Company  A  made  a  net  profit  after  pro- 
viding for  depreciation,  bad  debts,  etc.,  of  $5,000.00,  and  the  directors 
of  Company  A  declare  and  pay  a  dividend  of  10%  as  of  February 
15,  1906. 

The  stock  of  Company  B  owned  by  Company  C  was  purchased 
in  March,  1905,  at  125  on  the  basis  of  the  balance  sheet  below,  dated 
January  i,  1905 : 

ASSETS. 

Real  estate,  plant,  machinery,  etc  $450,000 

Patents    50,000 

Inventory  merchandise 200,000 

Accounts  receivable    150,000 

Cash 37,500 

$887,500 
LIABILITIES. 

Capital  Stock $500,000 

Bonded  indebtedness   200,000 

Accounts   payable    62,500 

Surplus 125,000 

During  the  year  1005  Company  B  makes  a  net  profit  of  $50,- 
ooo.oo  after  making  all  necessary  provisions  for  depreciation  on 
plant,  machinery  and  patents,  as  also  for  bad  debts,  and  the  direc- 
tors of  Company  B  declare  and  pay  a  dividend  of  8%  as  on  Febru- 
ary 14,  1906. 

Draw  up  all  the  necessary  entries  in  respect  to  the  dividends 
of  the  above  two  companies  as  they  should  appear  on  the  books 
of  Company  C,  the  holding  company.  State  reasons  for  same. 

3.  A  close  corporation,  incorporated  under  the  laws  of  the 
State  of  Illinois,  known  as  Company  A,  purchases  the  entire  out- 
standing capital  stock  of  $35,000.00  of  Company  B  in  the  year 
1905  for  the  sum  of  $52,500.00.  A  statement  of  assets  and  liabilities 
as  on  January  i,  1906,  of  each  company  is  given  below : 


PRACTICAL  ACCOUNTING  33 
COMPANY  A. 

ASSETS. 

Plant,  machinery,  etc $  457,500 

Merchandise  400,000 

Investment  in  Company  B's  capital  stock 52,500 

Due  by  Company  B  on  current  account 220,000 

Accounts  receivable  400,000 

Cash 45,ooo 


$  i,575,ooo 
LIABILITIES. 

Capital  stock   $  1,000,000 

Surplus    500,000 

Accounts  payable   75,ooo 


$  1,575,000 
COMPANY  B. 
ASSETS. 

Plant,   machinery,  etc $  100,000 

Merchandise 95,ooo 

Unsubscribed  capital  stock 65,000 

Accounts  receivable  80,000 

Cash    15,000 


$  355,ooo 

LIABILITIES. 

Capital    Stock    $  100,000 

Surplus 35,000 

Due  to  Company  A 220,000 


$     355,ooo 

The  directors  of  Company  A  realizing  that  it  is  illegal  for 
an  Illinois  corporation  to  own  the  capital  stock  of  another  cor- 
poration, and  furthermore  desiring  to  eliminate  the  indebted- 
ness of  $220,000  due  by  Company  B  to  Company  A  determine  to 
sell  the  stock  that  they  own  in  Company  B  to  their  own  share- 
holders at  150.  Company  B  increases  its  capital  stock  from 
$100,000  to  $300,000,  declares  a  stock  dividend  of  35%  and  sells 


34       ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

2300  shares  (shares  $100  each)  to  the  stockholders  of  Company  A 
at  par.  Company  A  declares  and  pays  a  dividend  of  28^4%  to  its 
shareholders.  Company  B  then  liquidates  its  indebtedness  to  Com- 
pany A. 

Prepare  journal  and  cash  book  entries  that  each  company 
should  make  to  record  above  transactions,  with  suitable  explanations, 
and  prepare  balance  sheet  of  each  corporation  after  completion 
of  above  transactions. 

In  this  question  it  is  to  be  assumed  that  the  shareholders  in 
Company  A  buy  the  stock  of  Company  B  in  the  same  ratio  as 
their  holdings  in  the  stock  of  Company  A  bear  to  one  another. 

4.  The  trial  balance  of  the  American  Mfg.  Co.,  as  at  Decem- 
ber 31,  1906,  before  closing  the  books  for  the  year  is  given  below. 
In  addition  to  the  information  obtainable  from  the  trial  balance, 
the  following  data  must  be  taken  into  consideration  in  closing  the 
books : 

Inventory  of  merchandise  at  Dec.  31,  1906,  $90,000. 

Inventory  of  tools  at  Dec.  31,  1906,  $4,500. 

Inventory  of  patterns  at  Dec.  31,  1906,  $4,000. 

Depreciation  on  buildings  at  rate  of  2^2  per  cent. 

Depreciation  on  machinery  at  rate  of  10  per  cent. 

Depreciation  on  patents  at  rate  of  6  per  cent. 

Depreciation  on  office  furniture  and  fixtures  at  rate  of  loper 
cent. 

Half  of  i  per  cent  of  the  net  sales  is  charged  each  year  to  profit 
and  loss  and  credited  to  reserve  for  bad  debts. 

As  this  company  owns  its  own  plant,  it  is  its  custom  to  treat 
its  investment  in  real  estate  and  buildings  as  a  separate  investment 
from  which  it  expects  to  receive  5  per  cent  and  to  charge  the  cost 
of  maintaining  same,  plus  interest  on  investment,  to  the  cost  of 
manufacture  as  rent. 

Prepare  closing  journal  entries  and  prepare  following  state- 
ments : 

Balance  sheet  as  at  January  i,  1907. 
Real  estate   operating  account. 

Profit  and  loss  account  showing — 

(I)  Cost  of  manufacturing  and  gross  profit. 

(II)  Cost   of   selling  and   administration   and   net   profit. 
Surplus  account. 


PRACTICAL  ACCOUNTING  35 

Insurance   unexpired  and  accrued  accounts  need  not  be  con- 
sidered in  this  question, 

TRIAL  BALANCE  AS  AT  DECEMBER  31,  1906. 

Real    Estate    $  25,000 

Buildings    50,000 

Machinery    40,000 

Tools  7,000 

Patents    25,000 

Patterns     5jooo 

Merchandise  purchase  account  420,000 

Bills   receivable    1,500 

Accounts    receivable    250,000 

Insurance   on   buildings    300 

Insurance  on  machinery,  tools  and  patterns....  500 

Insurance    on    merchandise    650 

Taxes,    real    estate    • 1,500 

Interest    (general     7,000 

Bond    interest    2,500 

Cash 45,ooo 

Labor,    productive    310,000 

Labor,    unproductive    55,ooo 

Power   21,000 

Repairs    to    building    950 

Repairs  to  machinery 1,310 

Factory  expenses 3,oio 

Employers'   liability    4,000 

Office  pay  roll   18,000 

Inventory  merchandise  January  I,   1906,    75,ooo 

Return  sales  account    41,000 

Merchandise   sales   account    — $1,050,500 

Allowances    10,900 

Office    furniture   and   fixtures    5,7oo 

Salaries   to   officers    1 5,000 

Postage  2,000 

Telegrams  and   telephones    1,800 

Taxes,   personal   property    1,000 

Collection  and  exchange    700 

Stationery  and  printing   3,050 

Freight  in , 23,000 


36        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

Freight  out 1 1,000 

Cartage  and  express 3,75o 

Bonding  of  employes   (office)    250 

Traveling  expense,  salesmen 17,500 

Salesmen's   commissions   and    salaries    40,000 

Bad    debts    7,4oo 

Bond    account    40,000 

Bills   payable    100,000 

Accounts    payable     43,ooo 

Surplus   39,020 

Capital   stock    200,000 

Reserves    to    provide    for    depreciation    bn 

Buildings    5,250 

Machinery   12,500 

Patents    7,5oo 

Office  furniture  and  fixtures  2,500 

Bad  debts   13,000 


$1,553,270    $1,553,270 


5.  An  insurance  firm  acts  as  general  agent  for  two  insurance 
companies — Company  A  and  Company  B.  On  January  I,  1907,  the 
books  of  the  general  agent  disclose  the  following  financial  con- 
ditions : 

ASSETS. 

Cash    $        2,340 

Agents   Ledger,    Company   A    10,980 

Agents    Ledger,    Company    B    15,360 

Furniture    and    fixtures    1,000        $29,680 


LIABILITIES 

Due  to  Company  A   $  5,890 

Due  to  Company  B   7,437 

Partners  Account    16,353        $29,680 


By  treaty  agreement  between  companies  A  and  B,  this  general 
agent  has  to  reinsure  30%  of  all  A's  risks  in  Company  B,  and  30% 
of  all  B's  risks  in  Company  A.  The  general  agents  receive  from 
each  company  a  commission  of  35%  on  the  net  business  written 


PRACTICAL  ACCOUNTING  37 

each  month.     The  general  agents  pay  20%  commission  on  the  net 
business  to  their  agents,  thus  making  net  15%  for  themselves 

The  agents  of  Company  A  report  to  the  general  agents  prem- 
iums during  January  of  $12,000,  and  return  premiums  of  $2,000. 

The  agents  of  Company  B  report  to  the  general  agents  prem- 
iums during  January  of  $15,500,  and  return  premiums  of  $2,750. 

The  expenses  of  the  general  agents  during  January  amount  to 
$2,000,  and  the  partners'  withdrawals  amount  to  $1,000.  They  re- 
ceive in  cash  from  agents  of  Company  A  the  sum  of  $11,000,  and 
from  agents  of  Company  B  the  sum  of  $12,500.  They  pay  to  their 
companies  during  January  their  indebtedness  as  on  the  first  of  the 
month. 

Prepare  journal  and  cash  book  entries  recording  above  trans- 
actions, taking  into  consideration  reinsurances,  commissions,  etc., 
and  prepare  statement  of  assets  and  liabilities  of  the  general  agents 
after  closing  balance  of  month's  profit  into  partner's  accounts. 

6.  In  1895  the  Chicago  Mfg.  Company  purchase  real  estate 
costing  $12,000,  erect  a  building  for  $30,000,  and  purchase  ma- 
chinery costing  $25,000.  No  further  purchases  are  made  and  on 
January  i,  1905,  a  balance  sheet  of  the  Company  discloses  the 
following  condition: 

ASSETS 

Real  Estate  $    12,000 

Buildings    30,000 

Machinery   25,000 

Merchandise  Inventory  60,000 

Accounts  Receivable 75,ooo 

Cash   10,000       $  212,000 


LIABILITIES 

Capital  Stock   $  150,000 

Surplus  23,500 

Reserve  for  Depreciation 

On  Buildings   7,500 

On  Machinery   15,000 

Accounts  payable  16,000        $  212,000 

On  May  16,  1905,  their  factory  is  burnt  down,  a  total  loss 
ensuing.  Their  books  of  acount  as  on  that  date  show  the  follow- 
ing ledger  balances; 


38        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

Debit  Balances — 

Real  Estate  $     12,000 

Buildings 30,000 

Machinery    25,000 

Merchandise  inventory,  Jan.  I,  1905  60,000 

Purchases    150,000 

Labor  and  other  factory  cost  60,000 

General  expenses  45,ooo 

Accounts  receivable 73,ooo 

Cash 32,000 

$  487,000 

Credit  Balances — 

Capital    Stock    $  150,000 

Surplus  23,500 

Reserve  for  depreciation 

On  buildings  7,500 

On  machinery    15,000 

Sales  (net)    280,000 

Accounts  receivable 73,ooo 

$  487,000 

For  the  years  1902,  1903  and  1904  their  books  showed  a  gross 
profit  on  manufacturing  averaging  25  per  cent  of  the  net  sales. 
The  company,  however,  only  succeeds  in  obtaining  $55,000  from  the 
Fire  Insurance  Companies  for  merchandise  lost. 

In  respect  to  the  buildings  and  machinery  the  companies  ac- 
knowledge that  the  cost  of  replacing  same  would  be  10  per  cent 
higher  in  1905  than  in  1895  and  after  taking  this  fact  into  con- 
sideration and  determining  what  they  consider  fair  depreciation 
they  settle  these  two  items  as  follows :  Building  $28,000,  machin- 
ery $17,500.  The  company  erects  a  new  building  costing  $40,000 
and  purchases  machinery  costing  $35,000  and  finding  that  the  value 
of  its  real  estate  is  now  $24,000  it  makes  book  entry  to  so  record  it. 
Prepare  cash  book  and  journal  entries  to  properly  record  all  of 
above  transactions,  losses  or  gains  due  to  fire,  actual  trading  profit 
from  Jan.  I,  1905,  to  date  of  fire  and  balance  sheet  after  mak- 
ing all  above  entries.  For  purposes  of  this  question  assume  no 
accounts  receivable  collected  or  acounts  payable  paid. 


PRACTICAL  ACCOUNTING  39 

CHICAGO,  ILL.,  Dec.  2,  1907. 
(Time,  6  hours.) 

i.    A  corporation's  balance  sheets  for  August,  1907,  and  Sep- 
tember, 1907,  were  respectively  as  follows : 
Assets:  August,   1907. 

Plant  and  Equipment  $4^000,000  oo 

Furniture    6,000  oo 

Tools    3,ooo  oo 

Stable  3,811  28 

Cash    .  15,250  36 

Material  Supplies  30,750  28 

Accounts  Receivable 28,920  13 

Unexpired  Insurance 510  29 


Total $4,088,242  34 

Liabilities : 

Capital  Stock  $2,500,000  oo 

Bonds  . . 1,350,000  oo 

Accounts  Payable 31,336  28 

Bills  Payable 26,240  12 

Accrued  Taxes  3,500  oo 

Accrued   Interest    5,625  oo 

Profit  and  Loss 171,540  94 


Total    $4,088,242  34 

Assets :  September,  1907. 

Plant  and  Equipment  $4,012,310  21 

Furniture 6,205  58 

Tools    3,218  86 

Stable  4,009  37 

Cash   8,328  29 

Material  Supplies    39,280  17 

Accounts  Receivable  32,321  83 

Unexpired  Insurance    832  12 


Total $4,106,506  43 


40        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

Liabilities : 

Capital  Stock $2,500,000  oo 

Bonds  1,362,000  oo 

Accounts  Payable 33,445  57 

Bills    Payable    18,240  12 

Accrued  Taxes   4,000  oo 

Accrued    Interest     1 1,250  oo 

Profit  and  Loss  177,570  72 


Total    $4,106,506  43 

Analyze  the  differences  in  the  corresponding  accounts  for  the 
period  and  show  disposition  of  increased  resources. 

2.  Under  the  laws  of  the  State  of  Maine,  certain  companies 
were  taken  over  by  a  newly  organized  corporation  which  bought 
their  entire  assets  and  conducted  the  business  for  several  months 
before  it  was  discovered  that  the  inventories  upon  which  the 
transaction  was  first  based  were  overstated  to  the  extent  of  $10,000 
in  the  case  of  one  of  the  constituent  companies  by  reason  of  a 
clerical  error.  It  was  further  found  that  it  would  be  impracti- 
cable to  recover  said  $10,000,  or  any  portion  of  it,  from  any  of  the 
original  companies,  or  from  any  of  the  original  stockholders. 

The  balance  sheet  of  the  Maine  corporation,  prior  to  the  dis- 
covery of  the  error  in  inventory,  was  as  follows : 

Plant   $268,137  oo 

Good  Will  and  Patents  28,967  49 

Cash    5,638  35 

Bills    Receivable    13,282  22 

Accounts   Receivable    1 17,203  88 

Inventories  232,751  42    $665,980  36 


Capital    Stock    $500,000  oo 

Accounts    Payable 22,684  26 

Bills   Payable 102,000  oo 

Surplus    41,296  10    $665,080  36 

What  entries  would  the  book-keeper  be  justified  in  making  to 
adjust  the  accounts?  Give  reasons  for  your  answer. 

3.  The  Zero  Manufacturing  Co.  (incorporated  under  the  laws 
of  New  Jersey)  has  a  capital  of  $40,000  which  is  held  as  follows : 
A  $21,000,  B  $2,000,  C  $8,500,  D  $8,500.  On  December  31,  1906, 


PRACTICAL  ACCOUNTING  41 

there  is  an  undivided  surplus  of  $34,576.  A  disposes  of  his  entire 
interest  in  the  concern  for  $35,000,  which  is  paid  to  him  by  B,  C 
and  D  out  of  the  company  funds.  B  then  agrees  to  dispose  of  his 
holdings  at  their  book  value  as  determined  immediately  after  A's 
retirement. 

Draft  entries  covering  the  transaction  and  show  amount  to 
be  paid  to  B  and  the  apportionment  of  C  and  D's  remaining  in- 
terests. 

4.  The  ledger  balances  of  the  Alpha  Brewing  Company  at  the 
end  of  the  year  1906  appear  as  follows: 

Capital  Stock  $   350,000  oo 

Treasury  Stock  $     30,000  oo 

Bonds  25,000  oo 

Real  Estate 36,782  10 

Buildings  103,285  25 

Machinery 57,463  41 

Horses       7,585  oo 

Wagons  and  Harness  5,2io  08 

Stationary  Cooperage  23,409  87 

Floating  Cooperage  12,705  28 

Signs    7,648  93 

Saloon  Fixtures   15,784  25 

Office  Furniture   1,285  10 

Bills  Receivable 24,710  85 

Accounts  Receivable  38,983  42 

Cash   60,562  07 

Accounts  Payable 6,575  89 

Inventory,  Jan.  i,  '05,  Beer,  Malt,  Hops,' 

Grits  and  Supplies    25,810  92 

Reserve  for  Depreciation : 

Machinery    $6,210  85 

Floating  Cooperage   2,382  72 

Stationary  Cooperage 1,008  10 

Signs   3,710  25 

Saloon  Fixtures    5,282  84 

Office  Furniture  285  75 

Horses   2,408  09 

Wagons  and  Harness 1,22482  22,51342 

Purchases  in  1905— Malt,  Hops,  Grits,  etc.       82,510  75 
Fuel  4,805  92 


42        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

Water 1,304  28 

Lighting  Expense    582  29 

Brewery  Labor  24,285  92 

Brewmaster    4,000  oo 

Revenue  Stamps  85,725  oo 

Beer  Sales   342,423  So 

Discount  on  Sales ; .  86,582  19 

Building  Repairs 1,242  85 

Saloon  Expense   1,187  10 

Machinery  Repairs    1,572  25 

Salaries — Officers  and   Clerks 6,21083 

Drivers'  Spending  Money 5,7o8  25 

Stable  Labor  1 1,642  82 

Stable  Expense  and  Feed 5,242  10 

Interest  on  Bonds 750  oo 

Wagon  and  Harness  Repairs 782  19 

Charity   647  33 

Advertising  1,528  19 

Discount  on  Purchases 764  85 

Interest  Received  6,210  82 

Insurance    2,583  41 

Taxes   2,237  88 

Office  Expense   385  75 

General  Expense 1,322  18 

Undivided  Profits— Jan.  I,  1905 3Q,577  53 

$  784,066  01    $   784,066  01 

The  Inventory  December  31,  1906,  is: 

Beer,   Malt,  Hops,   Grits  and  Supplies  $     42,708  23 

Unexpired  Insurance    810  25 

Fuel  385  25 

Taxes  prepaid  575  25 

Feed   185  oo 

Revenue  Stamps  ^825  oo 

Provide 

5  per  cent  Depreciation  on  Machinery. 
5  per  cent  Depreciation  on  Stationary  Cooperage. 

10  per  cent  Depreciation  on  Floating  Cooperage. 
20  per  cent  Depreciation  on  Signs. 


PRACTICAL  ACCOUNTING 


43 


15  per  cent  Depreciation  on  Saloon   Fixtures. 
5  per  cent  Depreciation  on  Office  Furniture. 

20  per  cent  Depreciation  on  Horses. 

10  per  cent  Depreciation  on  Wagons  and  Harness. 

Charge  off  Bad  Debts  $1,282.19. 

Close  the  books :  prepare  Trading  Statement,  Profit  and  Loss 
Statement  and  Final  Balance  Sheet. 

5.  At  the  close  of  the  first  year,  after  engaging  in  business, 
the  ledger  balances  of  an  Illinois  fire  insurance  company  may  be 
assumed  to  be  correctly  stated  as  follows : 

Losses  adjusted  and  paid $     16,785  90 

Losses  adjusted,  not  paid 5,2io  85 

Premiums  in  hands  of  Agents 7,892  54 

Capital   $  200,000  oo 

Surplus 100,000  oo 

Premiums   97,5oo  oo 

Interest    8,942  50 

Commissions    26,847  25 

Taxes   1,510  83 

Salaries    7,428  10 

General   Expenses    16,582  72 

Investments  and  Loans 290,150  69 

Office  Furniture   2,495  10 

Stationery  and  Supplies   (Inventory) 1,82890 

Accounts    Receivable    16,825  95 

Accounts   Payable    3,i8o  75 

Reserve  for  losses  adjusted 5,2io  85 

Organization  expense  1,822  03 

Cash    19,453  24 

$  414,834  10  $   414834  10 
The  Policy  Register  shows : 

Policies  Premiums 

Issued  Received 

Expiring  in  I  year  $1,300,000  oo  $     15,000  oo 

Expiring  in  2  years 1,075,000  oo  18,500  oo 

Expiring  in  3  years 1,450,000  oo  34,5oo  oo 

Expiring  in  5  years 1,250,000  oo  29,500  oo 


$5,075,000  oo    $   507,500  oo 


44        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

The  Illinois  Statute  reads : 

"In  estimating  profits,  there  shall  be  reserved  therefrom 
"a  sum  equal  to  the  whole  amount  of  unearned,  premiums 
"on  unexpired  risks  and  policies.  ****** 
"The  company  may  declare  dividends  not  exceeding  10  per 
"cent,  of  its  capital  stock  in  any  one  year  that  shall  have 
"accumulated  and  be  in  possession  of  a  fund  in  addition  to 
"the  amount  of  its  capital  stock  and  of  such  dividends  and 
"all  actual  outstanding  liabilities  equal  to  one-half  of  the 
"amount  of  all  premiums  on  risks  not  terminated  at  the 
"time  of  making  such  dividends.  A  year  is  defined  to  mean 
"a  calendar  year."  ********* 

Determine  the  reserve  required  and  state  what  sum,  if  any, 
is  available  from  dividends  without  impairing  the  surplus  shown 
in  the  ledger  balances.  Changes  in  relation  to  policies  cancelled 
or  settled  from  under  claims  for  losses  may  be  ignored. 

6.  The  Orinoco  Coal  Company  was  incorporated  in  1904,  under 
the  laws  of  the  State  of  Illinois,  with  an  authorized  capital  of 
$8,000,  divided  into  eighty  shares  of  the  par  value  of  $100  each, 
which  were  subscribed  for  as  follows : 

Samuel    Black 60  Shares. 

William  Green 10  Shares. 

John  White 10  Shares. 

Samuel  Black  was  elected  President;  Geo.  Brown,  Vice-Presi- 
dent  and  Manager,  and  Charles  Pinck,  Secretary  and  Treasurer. 
Neither  Brown  nor  Pinck  held  any  stock,  but  were  to  receive  in 
addition  to  their  salaries  a  percentage  of  the  net  profits ;  i.  e.  Brown 
15  per  cent,  and  Pinck  10  per  cent. 

No  assessment  whatever  were  made  upon  the  stock,  the 
credit  to  Capital  stock  being  offset  by  a  charge  of  Good  Will  and 
Franchises ;  and  the  money  necessary  for  the  conduct  of  the  business 
was  borrowed  notes  endorsed  by  the  President.  During  the  first 
two  years  the  business  was  profitable;  the  borrowed  capital  was  re- 
paid and  a  surplus  accumulated.  The  third  year  the  expenses  ex- 
ceeded the  profits  and  the  company  disposed  of  its  stock  of  coal 
and  furniture  and  fixtures  and  discontinued  business. 

At  a  meeting  of  the  stockholders  the  following  Balance  Sheet 
was  presented ; 


PRACTICAL  ACCOUNTING  45. 

ASSETS.                                             LIABILITIES. 
Cash    31  12      Accounts  Payable 740  22 

Accounts  Receivable   ..      817  32  Reserve  for  Bad  Debts.      376  05 

Samuel  Black 6,644  IS  Capital  Stock  8,000  oo 

Charles  Pinck 2,264  J4  Surplus 8,640  46 

Good  Will  &  Franchise.  8,000  oo 

17,756  73  17,756  73 

It  was  announced  that  Treasurer  Pinck,  who  was  not  financially 
responsible  and  was  not  bonded,  had  disappeared,  and  his  account 
was  uncollectable  but  would  be  reduced  by  crediting  the  account  with 
his  share  of  the  net  profits.  President  Brown,  whose  account  was 
also  largely  overdrawn,  stated  his  willingness  to  undertake  the 
work  of  liquidating  the  debts  of  the  company,  keeping  the  Reserve 
for  Bad  Debts  as  a  protection  against  such  of  the  Accounts  Re- 
ceivable as  could  not  be  collected,  and  offered  to  give  his  personal 
checks  at  once  to  William  Green,  John  White  and  Geo.  Brown  for 
their  share  of  the  surplus  after  charging  to  it  the  uncollectable  por- 
tion of  Pinck's  account.  The  proposition  was  accepted. 

How  much  should  William  Green,  John  White  and  Geo.  Brown 
respectively  receive,  and  how  much  would  be  placed  to  the  credit 
of  Pinck's  account? 

Show  Balance  Sheet  after  the  distribution. 

CHICAGO,  ILL.,  MAY  5,  1908. 
(Time,  6  hours.) 
i.      Proposition    A.      In    1906    a    manufacturer's    gross   sales 

amounted  to $202,706  oo 

against  which  his  outlay  was : 

Material   $94,645  oo 

Wages  61,725  oo 

Shop  expense  17,135  oo 

Administrative  expense 14,250  oo 

State  the  ratios  of  the  several  features  of  departmental  expense 
to  the  gross  sales;  also  the  per  centum  of  profit. 
Proposition  B.     The  same  excepting 

Gross  Sales  $435,000  oo 

Material  $233,000  oo 


46        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 


Wages  88,840  oo 

Shop  expense  27,825  oo 

Administrative  expense  17,585  oo 

Review  the  conditions  and  apparent  causes  that  result  in  the 
great  difference  shown  in  the  percentage  of  profit  between  the  two 
propositions. 

2.  On  January  i,  1900,  A  purchases  the  plant  and  business  of 
B  for  $400,000,  payable  $100,000  cash;  $150,000  January  i}  1901; 
$150,000  January  i,  1902,  with  interest  on  deferred  payments  at  6 
per  cent.  None  of  the  book  accounts  or  stock  of  finished  goods  on 
hand  January  i,  1900,  are  included  in  the  sale,  but  are  specifically 
reserved  by  B.  Of  such  the  Accounts  Receivable  are  $28,500  and 
finished  goods,  per  inventory,  $45.000.  The  agreement  further 
stipulates  that  B  shall  operate  the  plant  during  the  year  1900  and 
shall  be  reimbursed  on  January  i,  1901,  for  all  funds  advanced 
for  supplies,  expense,  labor  or  any  other  purpose  in  connection  with 
the  operation  of  the  business  during  1900,  as  shown  by  B's  books. 
Such  advances  to  be  computed  monthly  and  to  bear  interest  from 
the  last  day  of  each  month  at  6  per  cent,  per  annum  to  January  i, 
1901.  The  profits  of  the  business  for  the  year  1900  to  belong  to  A. 

On  December  31,  1900,  B  reports  that  inventory  of  finished  goods 
on  hand  is  $48,500.  Expenses  have  been  $284,000  and  sales  $350,000. 

Condensed  particulars  of  transactions  are  as  follows : 

Cash  Cash          Interest 

Sales      Collections  Advances      Due  B 

January   $15,000 

February   10,000 

March 5,ooo 

April 5,ooo 

May    5,ooo 

June    5,ooo 

July 100,000 

August    80,000 

September  75,ooq 

October    25,00?} 

November   15,000 

December    .  .   10,000 


$10,000 

$IO,OOO 

$55o.oo 

15,000 

25,000 

1,250.00 

10,000 

I2,OOO 

540.00 

15,000 

32,000 

1,280.00 

5,500 

35,ooo 

1,225.00 

18,000 

25,000 

750.00 

55,000 

30,000 

750.00 

75,000 

25,000 

500.00 

55,000 

30,000 

450.00 

45,ooo 

30,000 

300.00 

50,000 

15,000 

75.00 

TQ  OOO 

15,000 

L\f)W*J 

$350,000  $372,500  $284,000  $7,670.00 


PRACTICAL  ACCOUNTING  4? 

B  presents  the  following  statement  to  A  on  January  I,  1901,  and 
requests  Settlement : 

Sale  of  plant  and  business  as  per  contract  $400,000 

Less  cash  paid  by  A  January  i,  1900 100,000 


300,000 

Interest  6  per  cent,  i  year 18,000 

Advanced  by  B  monthly  284,000 

Interest  on  advances  7,670 


609,670 
Sales 35o,ooo 


Balance  due  B 259,679 

Of  which  $150,000  deferred  to  Jan.  i,  1902 150,000 


Due   January   i,    1901 $  109,670 

A  is  not  satisfied  with  statement  and  employs  Certified  Public 
Accountants  to  investigate  and  report  another  basis  of  settlement. 
It  is  found  that  the  Accounts  Receivable  December  31,  1900,  are 
$6,000,  and  B  has  taken  these,  as  well  as  the  finished  goods  remain- 
ing on  hand  ($48,500)  and  claims  both  items  belong  to  him.  There 
are  no  liabilities. 

Make  statement  for  A,  as  requested,  using  your  own  methods. 
B's  statement  of  interest  on  Advances  may  be  assumed  to  be  cor- 
rect in  this  question. 

3.  You  are  called  upon  to  audit  the  accounts  of  Roland  Stone 
&  Co.,  stock  brokers,  Chicago,  as  of  January  n,  1908. 

Statement  "A"  is  an  account  rendered  by  Henry  Hudson  & 
Co.,  the  New  York  correspondents  of  Roland  Stone  &  Co. 

Statement  "B"  is  an  account  current  made  up  from  Stone's 
books. 

Bring  down  long  and  short  currency  balances  on  statement  "A" 
and  establish  net  balance. 

Also  show  balance  of  stocks  open,  both  long  and  short. 

Bring  down  stock  balances  on  statement  "B,"  both  long  and 
short. 

Make  up  Reconciliation  statement,  showing  currency  differences 
between  "A"  and  "B"  statements. 


48        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 


u 

8 

to  *J 
tx    ^ 

T    to    O 

x  r>  o 

8 

iQ 

01 

to  »o   o 

t"x    IX     O 

i  1 

o 

1 

oo    c 

^g  £ 

^    co    O 

J\    O\    O 

0      Tf      0 

'  2"  if 

VO 

of 

CO 

! 

CO    CQ    to 

oS  oo" 

c   o 

0 

| 

R"o 

5  ^ 

1 

!«* 

o  V 

O\    8\ 

V 

of 

CO 

"3 

P 

P 

bo 

t 

"*"i       £*">             K^/( 

c 

c 

^ 

^_j       ._*              ^"2 

-4-» 

.2 

0 

c/ 

1/3   1       ° 

p 

0 

1 

S 

c 

k 

L 

^ 

CO 

<u 

C 

S 

y 

0)                 .                                        ^ 

?2 

w 

rt   (j 

IH 

<U 

CO 

<3   £ 

3           '§ 

s 

i^  fi       i 

< 

8  o 

§•2 

CO 

CO 

0> 
^ 

,c! 
t_t 

§L 

CO 

lc  1 

j«'a 

0 

U 

O 

12  ^ 

j^  x 

CO       CO 

1  ^ 

i^H                                                                             c3 

o>j    ^   *^                                  ^ 

< 

H  * 

£ 

O 
& 

3  i 
<  V 

i  ^  ^ 

4J 

c/5 

o3     c 
<L)     C 

PH    <3 

II 

.  ^    g                        w 

H-l    CO   T3 

E  & 

^  0 

8 

8 

>  s| 

8 

i—  i 

as 

&  & 

§§:| 

org 

00     "      ' 

T 

01 

'u 

1 

|J 

I' 

JH 

vj  ID 

&£ 

M   >H 

C? 

to   to 
tx    04 

c? 

O      10 

to  01 

co    co    O     to    O            o 
VO    vo     to    01      O             to 

il 

t 

CO  vo 
OA    O 

!>;      O^ 

of 

II 

to    O     01    VO     O             M 
01     OS    01     O     C 
t^    CO    to    M^    01 

£  E 

VO5 

01 

p  E 

T3    T3 

h-^.    f    . 

. 

. 

. 

SM 

*o  "^o 

XT'  N^- 

*<*     h-  H 

• 

• 

•         • 

r>N 

<u    <u 

N     ^  no      i- 

2  ^ 

I 

I 

I     '. 

t^    O 

N 

p^  p^ 

co    0\ 

Ol      |^x  OO      M 

JX  00    00     "-1 

o  H 

t 

J: 

5 

H 

( 

0 

E 
O 

bfl 

C 

**          CO 
to 

PI 

u 

O 

o 

7  s 

<u 

C    •—  ! 

11    II    1 

C. 

s 

QJ      O 

S" 

1§ 
pq  _co 

•s  j 

JU 

^ 

CO 

*      OJ 

t-, 
rt 

U 

"co 

.v3 

o  § 

hwester: 

Nashvi] 

Hj      <U             CD      r1             ''-' 
M   tiL   M-I          u;     c 

mi  13    ^           •    °         <u 

<a 

<a 
p 

lc 

CJ 

•4-J 

1  1 

3  ^ 

rt   JD 

6  ^ 

CO 

<L> 

1_ 

08  i 

v-i    o^ 
O 

d'S'S'rt-2    g-pqpq 

< 

>  p 

5   CO 

<£ 

PH 

PQ  < 

^  n4 

CO   CO   CO   &     0   W 

8 

8  vi 

B  8 

8  8 

8 

2  g> 

8.8 

o    o    o    o 

^2 

T 

T 

II 

T 

;i 

IIIi 

P  2^ 


PRACTICAL  ACCOUNTING 

&  8£  8  8  8 


49 


Is 


CO 


o 


§8 

>     W 

W§ 

55  H 

-  in 

89 


So 


m  o 

<N     O 


Mil 

•7J  42  ^J  *0 
«  il  ^  S 
C^i  <  ^  p^ 


*•  -  M\ 

Q        01         K*  i>  I^X       O        CS 

M  w  '-5  '-5  2  *  l" 

p  Q 


o    o  ^o         o    o    o 

T  T  i     T  T  T 


4_,     eu 


S5  J 


in  73  t; 

o  ;> 


to  to   o      •    to   fo 
tx  tx   O      • 


\M% 


>S  II 

al 

^  II 


w 


« 


"en    *3 


>-'  &  S 
Q  M^ 


o 
U 


0 

ii  'S 


I     I     I  II 


6  ^P 
<u  .5 

613 
z& 

2   o 

Q  ^ 

I     I 


<  > 

8  a 

U 


s  a  «  *  s  % 

u  u  |  ^  ^  £ 

^    w   o  'c        .£ 

8  8 

T  T 


8  8 
II 


T  f 


So        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

4.  A  railroad  corporation,  owning  an  important  system  of 
railways,  secures  the  passage  of  a  law  under  which  it  has  power 
to  acquire,  hold  and  vote  stocks  in  other  corporations.  It  ac- 
quires approximately  90  per  cent  in  each  case  of  the  capital  stocks 
of  three  smaller  railroad  corporations  owning  feeder  lines. 

Prepare  for  illustration  condensed  balance  sheets  of  the  four 
companies  prior  to  the  merger,  showing  in  each  case  the  following: 

ASSETS 

Property  Rights  and  Franchises. 
Materials  and  Supplies  on  Hand. 
Accounts   Receivable. 
Cash  on  Hand. 
Unearned    Insurance. 

LIABILITIES 

Bonded  Debt. 

Capital  Stock. 

Bills  Payable. 

Accounts  Payable. 

Accrued  Interest  and  Taxes. 

Surplus. 

The  larger  company  takes  over  the  Materials  and  Supplies  on 
hand,  and  also  the  Cash  on  Hand  of  the  three  subsidiary  com- 
panies, and  the  stock  of  the  subsidiary  companies  is  acquired  in  ex- 
change for  a  new  issue  of  preferred  stock  of  the  larger  company, 
dollar  for  dollar.  Based  upon  the  trial  balances  which  you  use  for 
illustration,  prepare  trial  balances  of  all  of  the  companies  as  they 
should  appear  when  the  merger  has  been  accomplished. 

5.  Review  Question  No.   i    (as  given  this  morning)   and  criti- 
cise method  adopted  by  B  in  calulating  interest  on  advances.  Pro- 
vided you  had  full  access  to  B's  books,  state  how  you  would  work 
out  the  accounts  and  establish  a  thoroughly  correct  basis  of  settle- 
ment    What   essential   errors   of  principles   can  be   shown   in   B's 
statement? 

6.  You  are  employed  to  conduct  the  accounting  for  a  public 
utility   proposition   just   incorporated.     It    involves    the   accounting 
for  both  the  construction  and  operation  of  the  plant.    The  company 
incorporates  under  the  laws  of  the  state  of  Illinois  and  issues  its 


PRACTICAL  ACCOUNTING  51 

stocks  and  bonds,  the  proceeds  of  which  are  used  to  build  the  plant. 
Give   opening   Capital   entries   and   Divisional   charges   in   con- 
struction   and    outline   an    operating    system   of    accounts.     In    the 
opening  and  construction  entries  use  your  own  figures. 


CHICAGO,  ILL.,  November  19,  1908. 
PART  I.— (Time,  3  hours.) 

I.  The  following  are  the  Balance  Sheets  of  two  companies 
which  carrying  on  similar  businesses  have  decided  to  amalgamate 
on  the  basis  that  the  good  will  and  assets  (except  the  shares  of 
Y.  Z.  Mining  Company  held  by  the  A.  B.  Mining  Company)  are 
of  equal  value.  How  would  you  recommend  that  the  amalgamation 
should  be  effected? 

Stat*  two  possible  methods,  with  full  explanation  of  your 
reasons,  and  give  in  each  case  the  Balance  Sheet  of  the  Amalga- 
mated Company. 

THE  A.  B.  MINING  COMPANY. 
BALANCE  SHEET  AT  DECEMBER  3ist,  1907. 

ASSETS. 

Cost  of  Mines  and  Other  Assets $250,00000 

Shares   in  the  Y.  Z.   Mining  Company,   1250  shares  of 

$100.00   each,    costing    187,500  oo 

Accounts   Receivable    5,ooo  oo 

Cash 2,500  oo 

Stock  of  Minerals    5,ooo  oo 


Total $  450,000  oo 

LIABILITIES 

Accounts  Payable   $    12,500  oo 

Creditors   for  cost  of  purchase   of   1,250  shares  in  the 

Y.  Z.  Mining  Company    (per  contra)    187,500  oo 

Capital  Stock,  2,500  shares  of  $100.00  each   250,000  oo 


Total $  450,000  oo 


52        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

THE  Y.  Z.  MINING  COMPANY. 

BALANCE  SHEET  AT  DECEMBER  3ist,   1907. 
ASSETS 

Cost  of  Mines  and  Other  Assets    $250,00000 

Stock  of  Minerals    2,500  oo 

Accounts  Receivable 5,ooo  oo 

Cash    2,500  oo 


Total $  260,000  oo 

LlABIITIES 

Accounts  Payable $     10,000  oo 

Capital  Stock,  2,500  shares  of  $100.00  each   250,000  oo 


Total $  260,000  oo 

2.  Bilsom  and  Marley  are  partners,  sharing  profits  and  losses 
equally.     The  partnership  is  dissolved  December  31,  1907,  at  which 
time   Bilsom's   capital   investment   is   $10,000,    and   Marley's   $2,500. 
The  total  liabilities  of  the  firm  are  $25,000,  which"  includes  $5,000 
due  B'ilsom  on  loan  account  and  $2,500  due  Marley  on  loan  account. 
The  whole  of  the  assets  of  the  firm  are  disposed  of  for  $30,000  cash 
on    May   I,    1908.      Prepare    accounts    closing   the    partnership    and 
show   the   position   in   which   the  partners   stand   with   each   other. 
No  allowance  for  interest  is  required. 

3.  You  are  called  to  make  up  a  statement  of  the   condition 
of  a  business  which  has  been  running  for  a  few  years  at  a  loss, 
but  to  which  has'  been  added  a  new  feature ;  upon  the  possibilities 
of  which  and  his  own  financial  responsibility  outside  of  the  busi- 
ness, the  proprietor  has  succeeded  in  negotiating  a  loan.    The  books 
have  not  been  well  kept,  but  the  following  particulars  can  be  ob- 
tained from  them : 

Merchandise  purchased  during  the  year $  50,000  oo 

Total  sales  for  year  40,000  oo 

Borrowed  from  John  Smith   30,000  oo 

Fixtures  purchased  during  the  year   5,ooo  oo 

Expenses  for  year  20,000  oo 

Proprietor's  drawings  during  the  year 3,ooo  oo 

Cash  on  hand  December  31,  1907,  1,300  oo 

Accounts   receivable  December  31,    1907,    5,ooo  oo 

Accounts  payable  December  31,  1907,   15,000  oo 

Mdse.  inventory  new  department  Dec.  31,  '07, 25,000  oo 


PRACTICAL  ACCOUNTING 


53 


The  books  on  January  i,  1907,  showed  the  following  balances: 

Cash  on  hand    $     300  oo 

Accounts    receivable    2,000  oo 

Fixtures    2,000  oo 

Accounts  payable 3,ooo  oo 

Capital    5,000  oo 

Advances  to  employes  2,000  oo 

On  January  i,  1907,  the  bookkeeper  had  made  up  the  following 
statement  intended  for  a  balance  sheet  at  that  date,  viz.: 


Cash $   300  06 

Accounts  receivable 4,000  oo 

Fixtures    2,000  oo 

Deficit    2,700  oo 


Accounts  payable $3,ooo  oo 

Loan  from  Mary  White  6,000  oo 


$9,000  oo  $9,000  oo 

Without  calculating  interest  or  depreciation  make  up  a  Profit 
and  Loss  Account  for  1907  and  a  Balance  Sheet  as  of  December 
3i,  1907- 

PART   II.— (Time,   3   hours.) 

4.  A  company  is  formed  at  January  ist,  1907,  with  a  capital 
of  $1,750,000.00,  consisting  of  17,500  shares  of  the  par  value  of 
$100.00  each. 

Of  these,  16,250  shares  are  sold  to  subscribers  at  par  for  cash. 

The  following  is  a  summary  of  the  transactions  of  the  Com- 
pany during  the  first  twelve  months  of  carrying  on  business : 

The  preliminary  and  formation  expenses  are  $12,500.00,  which 
are  paid  in  cash. 

They  purchase  freehold  and  leasehold  current  going  iron  works 
and  collieries  from  A.  B.  and  Company  for  $1,250,000.00. 

They  take  over  from  them  the  necessary  plant  and  machinery 
at  $375,000.00,  and  a  stock  of  iron,  coal,  etc.,  at  $229,250.00. 

The  vendors  take  in  part  payment  of  their  purchase  money 
$50,000.00  on  First  Mortgage  Bonds,  and  $125,000.00  in  shares  of 
the  Company,  fully  paid.  There  is  $1,665,000.00  paid  to  them  in 
cash. 


54       ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

The  Company  expends  during  the  year,  $54,200.00  in  additions 
to  the  plant  and  machinery  by  purchases  from  sundry  creditors 
to  the  extent  of  $41,300.00,  and  by  payments  through  Cash  Account 
of  $12,900.00. 

They  purchase  materials  from  sundry  creditors  to  the  extent 
of  $461,500.00,  and  they  purchase  for  cash  to  the  extent  of  $67,310.00. 
They  pay  for  wages,  rents,  royalties,  tolls,  wagon  hire,  repairs, 
etc.,  $842,700.00. 

Their  sales  from  iron  and  coal  to  sundry  debtors  amount  to 
$1,526,585.00.  They  receive  in  cash  from  sundry  debtors  $1,040,700.00. 

They  draw  on  sundry  debtors  bills  to  the  extent  of  $419,740.00. 

They  transfer  of  the  above  amount  to  sundry  creditors  $54,- 
510.00,  and  the  bank  credits  their  account  with  $331,400.00,  the  pro- 
ceeds of  those  discounted. 

They  pay  in  cash  to  sundry  creditors  $231,415.00. 

They  accept  for  creditors,  bills  of  exchange  to  the  extent  of 
$142,110.00;  of  this  amount  they  meet  $86,005.00  through  their 
banking  account,  the  balance  being  still  current  at  the  end  of  the 
year.  They  borrow  on  First  Mortgage  Bonds  $375,000.00  which  is 
paid  into  their  banking  account  as  received. 

They  pay  to  their  bankers  for  interest  and  commissions 
$8,040.00;  for  salaries,  office  expenses,  and  management,  $15,670.00; 
law  charges,  $410.00,  and  for  Directors'  and  Auditors'  fees,  $3,010.00. 

They  write  off  five  per  cent,  from  the  original  amount  of  the 
plant  and  machinery  for  depreciation,  but  nothing  from  the  addi- 
tions. 

They  also  write  off  the  following  amount?:  $25,000.00  from 
the  freehold  and  leasehold  property  to  cover  minerals  taken  from 
the  freehold  and  to  provide  for  the  expiration  of  the  leases ;  $3,005.00 
for  bad  debts,  and  one-fifth  from  the  preliminary  expenses. 

The  discount  allowed  to  sundry  debtors  amounted  to  $5,530.00. 

There  is  due  at  the  close  of  the  year  $2,250.00  for  interest  on 
Bonds,  and  the  value  of  the  stock  of  materials  then  on  hand  is 
$154,285.00. 

All  receipts  are  paid  into  the  bank,  and  all  payments  are  made 
by  check. 


PRACTICAL  ACCOUNTING  55 

Prepare  Trading  and  Profit  and  Loss  Accounts  and  Balance 
Sheet  as  at  December  3151,  1907,  showing  the  result  of  all  the  fore- 
going transactions.  Marshall  the  assets  and  liabilities,  beginning 
the  former  with  the  most  liquid  asset,  and  the  latter  with  the  lia- 
bility to  be  first  paid. 

Criticise  in  any  way  that  occurs  to  you  the  information  that  the 
Trading  and  Profit  and  Loss  Accounts  and  Balance  Sheet  give. 

5.  Prepare  from  the  following  figures,  as  if  for  a  meeting  of 
creditors,  a  Statement  of  Affairs  of  Brown  and  Company. 

Cash  at  Bank,  $500.00;  Cash  in  Hand,  $50.00;  present  value  of 
lease,  $5,000.00,  upon  which  a  loan  of  $2,500.00  has  been  obtained; 
debtors  good,  $10,000.00;  ditto  doubtful,  $1,500.00,  which  it  is  ex- 
pected will  produce  $750.00;  ditto  bad,  $2,500;  creditors  unsecured 
on  open  accounts,  $40,000.00;  creditors  on  bills  payable,  $10,000.00; 
stock-in-trade,  cost  $20,000.00,  estimated  to  realize  $12,000.00;  plant 
and  machinery,  cost  $12,500.00,  estimated  to  produce  $6,000.00; 
credit  for  an  advance  of  $4,000.00,  holding  security  valued  at 
$1,750.00;  liabilities  on  accommodation  bills  of  exchange,  $15,000.00, 
of  which  it  is  expected  $7,500.00  will  rank  for  dividend;  liabilities 
on  bills  discounted  $20,000.00,  of  which  it  is  expected  $3,500.00  will 
rank  for  dividend;  creditors  for  rent  and  wages,  $250.00. 

As  the  statement  of  affairs  referred  to  above  shows  insolvency, 
prepare  Trading  and  Deficiency  Accounts  from  certain  facts  there- 
in disclosed,  and  from  the  following : 

Capital  at  commencement,  $12,500.00;  sales,  $270,000.00;  loss 
on  shipment  to  Cape  Town,  $7,000.00;  purchases,  $241,200.00;  draw- 
ings, $14,000.00;  wages  (manufacturing)  $15,000.00;  trade  charges 
and  expenses,  $30,000.00;  profit  on  purchase  and  sale  of  shares, 
$1,750.00. 

6.  A,   B  and   C  were  partners  and  contributed  the   following 
capital :  A  $8,000,  B  $6,000,  and  C  $4000.     Profits  and  losses  were 
to  be  borne  equally.     At  the  end  of  the  first  year  each  partner  had 
drawn  $1^000.     The   assets  were  then  disposed  of   for  $3,000,  the 
purchaser  discharging  all  the  liabilities  of  the  firm.     How  should 
this  sum  of  $3,000  be  apportioned  among  the  partners  and  would 
any  of  them  have  to  advance  any  further  sum?     If  so,  state  which 
partner  and  how  much  and  make  up  the  necessary  accounts  to  show 
the  results. 


56        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

CHICAGO,  ILL.,  May  4,  1909. 
PART    I.— (Time,   3   hours.) 

i.  The  fiscal  year  of  a  Manufacturing  Company  ends  June  30, 
1908,  and  the  bookkeeper  presents  a  statement  to  the  Directors 
made  up  in  the  following  form: 

Gross  Sales   $  285,000  oo 

Increase  in  Inventory  15,000  oo 

$  300,00  oo 

Cost  of  Sales : 

Operating  expenses,  material  &  supplies. $  257,000  oo 

Plant   expense    12,000  oo 

Freight  on  returned  goods  600  oo 

Sundry  purchases  finished  goods 10,400  oo 

$  280,000  oo 


Manufacturing  Profit   $    20,000  oo 

Other  Income: 

Miscellaneous    earnings    $      1,500  oo 

Profit  on  contracts 6,500  oo 

Discount  on  purchases   500  oo 

$      8,500  oo 


$    28,500  oo 
Less: 

Discount  on   sales    $      2,87500 

Rebates   and   allowances    1,12500 

$      4,000  oo 


Net  Plant  Profit  $    24,500  oo 

Less: 

General  expenses    $      5,50000 

Interest 1,500  oo 

-      7,000  oo 


Net  Profit  $    17,500  oo 

You  are  required  to  make  up  a  Profit  and  Loss  statement  in 
regular    form,    showing    Purchases,    etc.,    and    using    such    of    the 


PRACTICAL  ACCOUNTING  57 

above  figures  as  may  be  necessary  together  with  those  following: 
Inventory  June  30,  1907,  Material  $115,000,  Supplies  $35,000,  Fin- 
ished Goods  $45,000.  Inventory  June  30,  1908.  Material  $140,000. 
Supplies  $10,000,  Finished  Goods  $60,000.  Material  used  in  factory 
during  the  year,  $75,000.  Wages  $122,500.  Fuel  $2,500.  Repairs 
and  Renewals,  $2,000.  Other  operating  expenses,  $55,000,  which 
includes  $25,000  supplies  used. 

2.  By  the  partnership  deed  of  a  manufacturing  firm  consist- 
ing of  four  members,  A,  B,  C,  and  D,  it  was  provided  that  in  the 
event  of  the  death  of  any  partner  before  the  expiration  of  the 
partnership  by  effluxion  of  time  on  December  3ist,  1911,  there 
should  be  paid  to  the  legal  representatives  of  the  deceased  the 
amount  appearing  to  his  credit  on  December  3ist,  next  preceding 
the  death,  together  with  interest  thereon  at  5  per  cent,  per  annum 
to  December  3ist  following  the  decease  and  a  share  of  the  profits 
of  the  year  of  his  decease  corresponding  to  the  number  of  days  that 
he  lived  during  it,  calculated  after  the  rate  of  the  average  of  his 
share  for  the  last  three  completed  years,  together  with  interest  on 
such  share  from  the  date  of  death  to  the  end  of  the  year. 

The  four  partners  shared  profits  equally  and  each  took  interest 
on  his  capital  at  5  per  cent,  per  annum,  but  no  interest  was  charged 
on  the  drawings,  for  each  drew  at  the  end  of  every  month  an 
equal  sum  in  anticipation  of  profits. 

The  surviving  partners  were  to  share  the  profits  equally.  C 
died  on  June  30th,  1905.  The  profits  of  the  three  immediately 
preceding  years  had  been  respectively  $70,000.00,  $78,000.00,  and 
$63,500.00.  The  proportion  payable  in  respect  of  a  deceased  part- 
ner's interest  and  profits  it  was  stipulated  by  the  deed  of  partner- 
ship should  be  treated  as  a  trade  expense  of  the  year  in  which  he 
died. 

With  the  aid  of  the  following  Trial  Balance,  of  December  3ist, 
1905,  taken  out  before  interest,  depreciation,  and  an  amount  in 
lieu  of  factory  rent  have  been  charged,  prepare  Manufacturing 
and  Profit  and  Loss  Accounts  for  1905,  showing  the  various  items 
in  their  proper  divisions,  and  allowing  $2,500.00  for  depreciation 
of  Office  Furniture  and  Fixtures,  and  5  per  cent,  on  the  amount 
of  the  Real  Estate  (as  appearing  in  the  Trial  Balance)  for  Factory 
Rent.  Also  construct  a  Balance  Sheet  showing  what  was  due  to 


58        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

the  deceased's  estate  and  what  capital  stood  to  the  credit  of  each 
of  the  surviving  partners. 

The  inventory  at  December  3ist,  1905,  was  $125,000.00.  Bills 
Receivable  to  the  amount  of  $1,000.00  falling  due  after  December 
3ist,  1905,  had  been  discounted. 

TRIAL   BALANCE,   DECEMBER   3151,    1905. 

A,  Capital    Account    $    120,000  oo 

B,  Capital  Account   1 10,000  oo 

C,  Capital  Account   100,000  oo 

D,  Capital  Account  90,000  oo 

A,  Drawing  Account   $  12,000  oo 

B,  Drawing  Account    12,000  oo 

C,  Drawing  Acocunt    5,ooo  oo 

D,  Drawing  Account   12,000  oo 

Inventory,  December  3ist,  1904,   100,000  oo 

Purchases  during  the  year  after  crediting 

Bought  Returns    1,775,000  oo 

Factory  Wages  and  Salaries   250,000  oo 

Balance  of  Discounts  Received,  and  Al- 
lowed      20,000  oo 

Sales  during  the  year,  after  debting  sold 

Returns    2,110,00000 

Cash  in  Hand  and  at  Bank  29,500  oo 

Bad  Debts    16,000  oo 

Bills    Receivable    15,00000 

Office    Salaries    9,000  oo 

General  Office  Expenses   2,500  oo 

Accounts   Receivable    414,000  oo 

Traveling  Expenses    10,000  oo 

Taxes,  Factory 1,000  oo 

Rent  and  Taxes,  Office 2,000  oo 

Real  Estate   60,000  oo 

Plant  and  Machinery  15,000  oo 

Office  Furniture  and  Fixtures  2,500  oo 

Bills    Payable    50,000  oo 

Accounts   Payable    150,00  oo 

Interest  and  Bank  Discount,  paid  7>5oo  oo 


$2,750,000  oo    $2,750,000  oo 


PRACTICAL  ACCOUNTING  so 

3.  A  new  corporation,  D  is  formed  to  purchase  and  amalga- 
mate the  business  of  three  corporations,  A,  B,  and  C  carrying  on 
the  same  class  of  business,  at  December  3ist,  1908. 

There  are  considerable  differences  between  the  capitals,  the 
gross  sales,  the  expenses  and  the  net  profits  of  the  three  corpora- 
tions. The  amount  to  be  allotted  to  each  in  shares  of  the  new 
corporation  for  its  capital  and  good  will  is  agreed  to  be  referred 
to  you. 

Using  your  own  figures,  construct  and  give  a  profit  and  loss 
account  for  five  years  ended  December  3ist,  1908,  and  balance 
sheet,  showing  liabilities  other  than  capital,  at  December  3ist,  1908, 
for  Corporations  A,  B,  and  C,  illustrating  the  foregoing  particulars, 
and  assume  that  Corporation  A  shows  a  larger  profit  on  a  smaller 
capital  than  either  of  the  others. 

Give  the  balance  sheet  of  the  new  Corporation  D  as  it  will 
appear  as  the  result  of  your  Report,  and  state  your  reasons  for 
the  allotment  you  consider  equitable. 

PART   II.— (Time,   3   hours.) 

4.  Two   professional   firms,   consisting   of   two   partners   each, 
agree    to    amalgamate.     Jones    and    Robinson    have    Accounts    Re- 
ceivable,  $12,500.00  and  other  assets  taken  as  net,  $1,250.00.  Sikes 
and  Wilson  have  Acounts  Receivable,  $11,000.00,  and  other  assets 
net  $1,000.00,  each  firm  bringing  $2,500.00  in  Cash  and  discharging 
their    own    liabilities,    with    an    arrangement   that   the   partners    of 
each  firm  shall  have  a  preferential  allowance  of  15  per  cent,  on  pro- 
fessional fees  arising  from  the  connection  of  each  firm. 

At  the  end  of  twelve  months  the  earnings  were  $49,500.00,  of 
which  $19,000.00  came  from  Jones  and  Robinson's  introduction, 
$23,000.00  from  Sikes  and  Wilson's,  and  the  rest  from  neutral 
ground.  The  Accounts  Receivable  of  Jones  and  Robinson  were 
realized  at  an  average  loss  of  6  per  cent.,  those  of  Sikes  and  Wil- 
son at  5  per  cent.  The  expenses  were  $16,725.00. 

As  at  the  end  of  the  year,  make  out  the  Realization  Account 
of  each  firm,  the  Profit  and  Loss  Account  of  the  amalgamated 
firm,  and  the  Capital  Accounts  of  each  partner,  allowing  interest 
on  the  net  assets  and  cash  brought  in  at  5  per  cent,  per  annum, 
but  none  on  the  Accounts  Receivable.  The  drawings  have  been : 
Jones,  $5,000.00;  Robinson,  $3,250.00;  Sikes,  $5,500.00;  Wilson, 
$3,500.00,  without  interest. 


60        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

Profits  are  divided  as  follows :  Jones  and  Sikes,  three-tenths 
each;  Robinson  and  Wilson,  two-tenths  each.  The  same  propor- 
tions govern  the  divisions  of  Assets  brought  in  and  the  Prefer- 
ential Allowances. 

5.  Two  merchants,  C.  F.  Munton  and  W.  A.  Spencer,  agree  to 
share  equally  in  a  joint  adventure  in  trade  to  the  West  Indies. 

On  March  ist,  1907,  they  charter  a  small  vessel  and  purchase 
and  ship  materials  which  cost  them  $197.00,  for  which  Munton 
gives  his  check. 

This  cargo  they  consign  to  John  Smith,  their  agent  at  Havana, 
which  he  disposes  of,  and  in  return  ships  on  board  the  same 
vessel  4,000  cases  of  Commodity  A  and  100  cases  of  Commodity  B ; 
and  he  draws  on  Munton  at  sight  for  $125.00,  this  being  the  amount 
of  the  agent's  charges  and  disbursements  over  and  above  the  net 
proceeds  of  the  cargo  consigned  to  him.  Munton  accepts  and  pays 
the  bill.  On  April  ist  the  vessel  arrives,  whereupon  Munton  pays 
sundry  charges  of  $337.50.  Spencer  pays  the  freight,  amounting 
to  $493.00.  On  April  4th  Munton  sells  1,000  cases  of  Commodity 
A  to  Henry  Chamberlain  for  $239.58,  and  collects  $150.00,  and  on 
April  loth  Spencer  collects  the  rest. 

About  this  time,  Mr.  Spencer  happens  to  have  occasion  for 
1,400  cases  of  Commodity  A,  which  he  takes  on  April  I4th,  and 
with  Munton's  consent  values  at  $291.66.  He  also  takes  10  cases 
of  Commodity  B,  valued  at  $47.50.  Munton  sells  the  other  1,600 
cases  of  Commodity  A  on  April  2oth  to  John  Walters  for  $383.33, 
and  a  month  after  accepts  $382.50  in  full  payment. 

Mr.  Munton  next  sells  on  April  25th  the  other  90  cases  of 
Commodity  B  in  barter  for  30  cases  of  Commodity  C,  which  he  and 
Spencer  divide  equally  between  them. 

The  goods  being  thus  disposed  of,  Munton  presents  his  bill  of 
charges,  which  comes  to  $22.66,  and  desires  to  have  accounts  stated 
between  Mr.  Spencer  and  him. 

You  are  required  to  give  the  Ledger  Accounts  of  the  joint 
adventure  recording  the  foregoing  transactions  as  follows : 

Joint  Adventure  Account, 
C.  F.  Munton, 
W.  A.  Spencer, 
Henry  Chamberlain, 
John  Walters. 


otn  rl      n1  cr\     ^ 


PRACTICAL  ACCOUNTING  61 


and  also  W.  A.  Spencer's  account  in  C.  F.  Munton's  ledger,  show- 
ing his  joint  adventure  with  W.  A.  Spencer. 

6.  On  December  i,  1907,  the  following  particulars  are  furnished 
of  the  position  of  John  Mapleton,  insolvent:  Factory  equipment 
cost  $15,000.00,  estimated  to  realize  $10,000.00.  Stock  of  finished 
goods,  $10,000,  estimated  worth  $7,500.00.  Material  and  supplies 
$2,500.00,  estimated  worth  $1,000.00.  Furniture  and  Fixtures, 
$900.00,  estimated  worth  $200.00.  Investments  valued  at  $25,275.00, 
of  which  $15,000.00  is  held  by  Bankers  as  security  for  loan  of 
$12,000.00.  Accounts  receivable,  $6,250.00,  of  which  $2,500.00  are 
good;  $1,250.00  bad;  and  $2,500.00  estimated  to  realize  $1,500 
Cash,  $575.00,  of  which  $25.00  represents  petty  expense  items  not 
charged  up,  and  $50.00  an  I.  O.  U.  of  a  former  employe  which  is 
worthless.  Accounts  Payable,  $28,500.00.  Bills  Payable,  $25,000.00, 
of  which  $12,000.00  is  due  Bankers.  Wages  due,  $500.00.  Rent  due 
and  past  due,  $1,000.00.  Capital  on  January  i,  1907,  as  shown  by 
books,  $15,000.00.  Loss  by  sale  of  investment  May  i,  1907,  $5,000.00. 
Loss  in  trading  account  January  n,  1907,  to  December  i,  1907, 
$3,500.00.  Drawings  charged  personal  account  of  John  Mapleton, 
$1,000.00. 

Make  up  a  statement  of  affairs  and  a  Deficiency  account  as  on 
December  i?  1907. 


CHICAGO,  ILL.,  May  3,  1910. 
PART  I.— (Time,  3  hours). 

i.  I  start  in  business  with  $5,000  in  cash.  At  the  end  of  the 
first  year  my  purchases,  on  which  I  am  allowed  2^  per  cent  dis- 
count for  cash,  have  amounted  to  $108,408.04,  which  I  have  paid 
for,  with  the  exception  of  invoices  amounting  to  $7,108.04. 

My  sales  have  been  $119,212.50,  of  which  sum  $7,107.50  are  out- 
standing, the  balance,  on  which  I  have  allowed  5  per  cent,  discount, 
having  been  paid  for  in  cash. 

My  stock  consists  of  raw  material  costing  $3,756.50,  and  of 
finished  goods  of  a  selling  value  of  $6,458,  but  costing  $4,906.  I 
have  paid  during  the  year  $6,702.87  in  wages,  and  $2,706.54  in  sal- 
aries, rent  and  other  expenses;  and  I  owe  $455.56  under  the  latter 
head.  I  have  drawn  $1,200  on  acount  of  my  profits. 


62       ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

Construct  all  the  Ledger  Accounts  necessary  to  show  the  force 
going  transactions,  and  prepare  a  Balance  Sheet  and  Trading  and 
Profit  and  Loss  Accounts  at  the  end  of  the  year,  calulating  interest 
on  capital,  but  not  on  drawings,  at  the  rate  of  5  per  cent,  per 
annum. 

2.  A.  B.  &  Co.  agree  with  C.  D.  &  Co.  that  the  latter  shall 
ship   on   consignment   to   Honolulu   on   joint   account   20   cases   of 
commodity  "X,"  the  invoice  price  of  which  is  $2,100,  less  2,Vz  per 
cent.     A.  B.  &  Co.  pay  the  packing  charges,  $25;  also  freight,  in- 
surance and  other  charges,  $90,  and  they  draw  on  their  correspon- 
dents in  Honolulu  in  advance  for  $1,600  at  90  days,  which  is  dis- 
counted at  a  cost  of  $20,  and  the  proceeds  handed  to  C.  D.  &  Co. 
as  part  payment.    These  transactions  may  be  dated  March  ist,  1909. 
On  the  3Oth  of  November,   1909,  A.  B.  &  Co.  receive  the  account 
sales  and  net  proceeds,  $418,  and  they  then  pay  C.  D.  &  Co.  the 
balance  due  to  them. 

Prepare  a  Joint  Consignment  Account  charging  interest  on  the 
amount  lying  out  at  5  per  cent,  per  annum  for  eight  months,  clos- 
ing it  by  dividing  the  loss.  Also  an  account  to  be  rendered  by  A.  B. 
&  Co.  to  C.  D.  &  Co.  closed  by  payment  of  the  balance  and  prove 
that  the  losses  borne  by  each  are  equal. 

3.  On    April    ist,    1909,    a    Tobacco    Manufacturer    purchases 
42,600  Ibs.  of  leaf  (lying  in  bond)  at  i2l/z  cents  per  Ib.     His  trade 
is  divided  into  two  departments,  No.  I  and  No.  2. 

During  the  half  year  ended,  3oth  September,  1909,  he  takes  out 
of  bond  34,200  Ibs.,  paying  thereon  duty  at  75  cents  per  Ib.,  and 
sundry  expenses,  one  cent  per  Ib.  This  leaf  is  used  in  the  manu- 
facturing, viz. :  21,500  Ibs.  for  Number  i,  and  12,700  Ibs.  for  Num- 
ber 2,  and  in  process  of  manufacture  the  weights  increase  by  12 
per  cent  and  15  per  cent,  respectively. 

Of  the  finished  article  he  sells  19,240  Ibs.  of  Number  I  at  $1.25 
per  Ib.,  and  13,600  Ibs.  of  Number  2  at  $i  per  Ib.,  allowing  4  per 
cent  discount  in  each  case. 

The  expenses  are:  Wages,  $3,630;  packing,  $550;  freight,  $615; 
salesmen's  expenses,  $980;  rent,  taxes,  etc.,  $715;  advertising,  $435; 
repairs,  $280;  sundries,  $165. 

He  values  his  stock  on  hand  at  September  3oth,  1909,  as  fol- 
lows:  Leaf  in  bond  at  cost;  in  department  Number  I  at  $1.02  per 
Ib. ;  in  department  Number  2  at  9ic  per  Ib.,  dividing  the  expenses 


PRACTICAL  ACCOUNTANCY  63 


thus :  Two-thirds  to  Department  Number  I,  and  one-third  to  De- 
partment Number  2. 

Prepare  Ledger  Account  of  Leaf  in  Bond,  and  Profit  and  Loss 
Accounts  for  the  half  year  for  Departments  Number  I  and  Num- 
ber 2,  showing  details,  results,  and  stocks  (weight  and  cost  price) 
on  hand. 

4.  A  Factory  consists  of  two  blocks  of  buildings,  "A"  and  "B". 
On  the  first  of  January,  1907,  "A"  contains  engine  and  boiler  which 
cost  $4,000,  and  machinery  costing  $13,000;  "B"  contains  machinery 
costing  $7,000.     The  following  are  purchases  of  machinery :  Octo- 
ber ist,  1907,  "A",  $1,000 ;  July  ist,  1908,   "A",  $750;  "B",  $1,500; 
April  ist,  1909,  "A",  $600;  "B",  $900;  October  ist,  1909,  "B",  $250. 

On  January  ist,  1908,  machinery  (costing  January  ist,  1907, 
$1,000)  is  sold  from  "A"  for  $625,  and  on  July  ist,  1908,  machinery 
(costing  $1,300  January  ist,  1907)  is  sold  from  "B"  for  $1,000. 

The  accounts  are  made  up  to  December  31  st  each  year.  On 
December  3ist,  1909,  the  whole  premises  and  contents  are  destroyed 
by  fire,  and  the  Fire  Insurance  company  agrees  to  pay  upon  the 
following  basis :  Engine  and  boiler,  cost  price,  less  depreciation  8 
per  cent,  per  annum  upon  that  sum ;  machinery  in  "A",  cost,  less 
depreciation  at  10  per  cent,  per  annum  upon  diminishing  value; 
machinery  in  "B",  cost,  less  depreciation  at  7^  per  cent,  per  an- 
num upon  diminishing  value. 

Prepare  Ledger  Accounts  showing  how  much  is  recoverable 
upon  this  basis. 

5.  A.    and    B.    on   winding   up   their   partnership    found   their 
assets  realized  as  follows : 

Factory  premises  standing  in  their  books  at  $10,000,  realized 
$4,000. 

Machinery  standing  in  their  books  at  $7,500  realized  $2,500. 

Merchandise  standing  in  their  books,  at  $5,500,  realized  $4,500. 

Accounts  receivable  standing  in  their  books,  at  $9.500,  realized 
$6,  500. 

Their  unpaid  liabilities  were  $10,500.  A's  capital  stood  at 
$15,000,  and  B.'s  capital  at  $7,000.  In  respect  of  Profits  and  Losses 
they  were  equal  partners. 


64        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

Divide  the  proceeds  of  the  realization  between  them  after  pay- 
ing off  the  liabilities,  and  debit  them  as  having  been  paid  the  pro- 
portion to  which  each  was  entitled,  and  show  what  amount  would 
be  payable  (if  any)  by  either  partner  to  the  other  to  settle  the 
accounts. 


PART    II. 
Tuesday,  May  3,  1910. 

6.  The    capital    of    an    Irrigation    Company    is    made    up    of 
$1,000,000  Common  stock ;  $500,000  5  per  cent,  cumulative  Preferred 
stock,  and  the  profits  of  any  year  are  to  be  applied: 

ist.  To  paying  the  Manager  5  per  cent,  thereof  for  remun- 
eration. 

2nd.    To  paying  the  Preferred  dividend  and  any  arrears  thereof. 

3d.    To  the  Common  Dividend  up  to  10  per  cent. 

Any  surplus  on  the  above  to  be  applied: 

ist.     10  per  cent,  thereof  to  the  Manager  as  bonus. 

2nd.  Two-thirds  of  the  remainder  as  further  dividend  on  com- 
mon stock. 

3d.     One-third  of  the  remainder  to  Reserve. 

The  profits  of  the  year  1908  were  $175,000.  The  Preference 
dividend  of  1907  was  2  per  cent,  in  arrears. 

Distribute  the  Profit  on  the  lines  stated,  using  a  ledger  form 
to  show  the  appropriations  you  make. 

7.  A,    B    and   C   engage   in   business,    A    contributing   $10,000 
capital ;  B  $5,000,  and  C  undertakes  to  take  the  active  management 
at  a  salary  of  $3,000  a  year,  to  be  paid  to  him  monthly.     After 
providing  5  per  cent,  interest  on  capital  they  are  to  divide  the  net 
results  in  the  proportion  of  5,  3,  and  2.     At  the  end  of  18  months 
they  ascertain  the  position  to  be  unfavorable  and  decide  to  wind  up 
The    assets    are    agreed   to    be   worth    $12,500,    of    which    A    takes 
$10,000,  and  B  $2,500.     There  are  no  liabilities  except  for  the  capi- 
tal and  simple  interest  thereon,  and  one  month's  salary  due  C.  State 
the  position  of  the  three  partners  to  each  other. 


PRACTICAL  ACCOUNTANCY  65 

8.  You  are  required  to  write  up  the  accounts  of  the  Executor 
of  an   estate  and   show   the  amounts  which  would   appear  in  the 
Capital  and  Income  accounts  as  at  date  of  March  31,  1910.     The 
Testator  having  died  November  30,  1909,  leaving  a  widow  who  is  to 
receive  two-thirds  of  the  income,  and  one  child  who  is  to  receive 
one-third.     The  property  consisted  of: 

$40,000  loaned  on  mortgage  at  5  per  cent.  Interest  payable  semi- 
annually  on  June  30th  and  December  3151. 

$10,000  first  mortgaged  5  per  cent,  bonds  of  a  Railway  Company. 
Interest  semi-annual  on  March  ist  and  Sept.  ist 

$10,000  5  per  cent,  cumulative  preferred  stock  of  an  Industrial  com- 
pany: — full  dividends  on  which  were  declared  and  paid 
quarterly  in  each  year  up  to  Dec.  31,  1907.  4  per  cent, 
was  paid  in  1908;  4  per  cent,  in  1909,  and  on  March  3ist, 
1910,  the  Executor  received  2  per  cent,  in  respect  of  divi- 
dends in  arrears,  and  iVz  per  cent,  for  first  quarter  of  1910. 

$20,000  Common  Stock  of  Industrial  Company,  which  paid  2  per 
cent,  cash  dividend  on  March  I,  1909;  2  per  cent.  June  I, 
1909;  2  per  cent  September  i,  1909;  2  per  cent,  cash  and 
a  stock  bonus  of  10  per  cent. 

$  5,000  in  household  furniture  and  effects — devised  to  widow. 

$     175  cash  in  house — devised  to  widow. 

$  4,250  cash  in  bank,  of  which  the  residue,  after  discharging$i,25o 
of  debts  due  sundry  creditors  and  $250  for  funeral  ex- 
penses, is  devised  to  the  widow. 
Assume  all  sums  receivable  to  have  been  collected,  and  that  the 

debts  and  funeral  expenses  have  been  paid.  Also  that  the  cash  resi- 
due and  household  effects  have  been  transferred  to  the  widow. 
Ignore  odd  days  in  making  apportionment  and  consider  months 

as  i-i2th  of  the  year. 

9.  On  June  30,   1905,  the  following  Balance  sheet  of  a  small 
merchant  is  furnished  by  him: 

Cash  at  Bankers,  $575.  Cash  in  office,  $225.  Accounts  receiv- 
able, $3,785.  Merchandise,  $1,000.  Store  Fixtures,  $415.  Accounts 
payable,  $3,500.  Bills  payable,  $2,000.  Balance  (capital),  $500. 

Upon  inquiry  it  is  disclosed  that  the  following  items  have  been 
omitted  from  the  Balance  Sheet,  and  have  not  been  entered  on  the 
books,  viz. : 

(a)     $1,000  borrowed  at  6  per  cent.  June  30,  1903,  upon  which 


66       ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

nothing  has  been  paid  in  respect  of  either  principal  or  interest. 

(b)     $50  due  for  rent  of  store. 

The  cash  is  found  to  include  sundry  petty  expense  items  amount- 
ing to  $35,  and  an  I.  O.  U.  of  a  former  employe  for  $50,  which  is 
worthless. 

$1,500  of  the  accounts  receivable  are  known  to  be  bad;  $1,500 
are  good,  and  the  balance  is  estimated  to  produce  $500.  The  mer- 
chandise can  be  sold  to  realize  $750.  The  fixtures  will  realize  $150. 
The  merchant  has  no  personal  assets. 

Prepare  a  statement  of  affairs  and  a  Deficiency  Account. 

10.  A  firm  of  three  partners  divided  their  profits  as  follows: 
A,  11-25;  B'j  8-25;  C,  6-25.  By  the  partnership  agreement  it  was 
provided  that  in  the  event  of  the  death  of  either,  the  survivors  should 
take  the  deceased's  share  in  the  proportion  they  already  shared  the 
profits.  A  dies.  What  proportion  of  the  profits  would  B  and  C  re- 
spectively take  afterwards? 


CHICAGO,  ILL.,  DECEMBER  22,   1910. 
PART  I. 

i.  Prepare  a  Trading  and  Profit  and  Loss  Account  from  the 
following  Trial  Balance  and  data  for  the  year  ended  December 
3ist,  1909. 

The  Stock  of  Stores  and  Materials  at  the  end  of  the  year, 
December  31  st,  1909,  was  $8,500.  The  rent  at  the  rate  of  $2,500 
was  paid  up  to  the  30th  of  September.  Bad  Debts  amounting  to 
$850.00  have  to  be  written  off.  A  provision  of  $1,250  has  to  be  made 
to  meet  possible  bad  debts.  Depreciation  at  the  rate  of  5  per  cent, 
per  annum  on  the  Plant  at  January  ist,  1909,  has  to  be  written  off. 
The  wages  are  paid  up  to  the  27th  of  December;  the  wages  from  that 
date  to  the  3ist  of  December  amount  to  $175.  Interest  at  5  per 
cent,  per  annum  has  to  be  passed  on  the  amount  of  the  Partners' 
capital  Accounts  at  January  ist,  1909.  (No  interest  on  Partners' 
current  Accounts).  Profits  to  be  divided  equally  between  the  Part- 
ners. The  necessary  entries  for  division  of  Profits  and  Interest, 
etc.,  to  be  passed  through  the  Partner's  current  Accounts.  It  is  as- 
sumed that  no  further  entries  are  required  to  be  made  to  complete 
the  Accounts. 


P  PRACTICAL  ACCOUNTANCY  67 

JOHNSON   AND  WHITE 
Trial  Balance,  December  31st,  1909. 

Investments    $       2,410  oo 

Accounts    Payable    $      19,12500 

Stores  and  Materials,  1st  January,  1909..         2,120  oo 

Johnson's  Capital  29,600  oo 

White's  Capital  15,300  oo 

Purchases    24,225  oo 

Johnson's  Current  Account 2,310  oo 

White's  Current  Account 3,Qio  oo 

Accounts  Receivable   13,265  oo 

Wages    27,825  oo 

Rent   1,875  oo 

Dividents  on  Investments  115  oo 

Plant,  ist  of  January,  1909  44,100  oo 

Bills  Payable  4,975  oo 

Bank  975  oo 

Office  Expenses  and  Salaries 2,100  oo 

Installments  received  on  account  of  work 

in  progress  14,355  oo 

Taxes  40  oo 

Bills  Receivable 3,670  oo 

Cash  in  Office   50  oo 

Law  and  Accountancy  Charges   255  oo 

Repairs 330  oo 

Work  in  Progress,  December  31,  1909 25,905  oo 

Bank  Charges 90  oo 

Sales    70,035  oo 

$   154,480  oo    $   154,480  oo 

2.  Prepare  a  Balance  Sheet  and  Partner's  Current  and  Capital 
Accounts   from  the  above  Trial  Balance. 

3.  Prepare  a   Statement  of  the  affairs  of   Messrs.  Wilson  & 
Company  from  the  following  figures : 

Cash  on  hand,  $50.00.  Debtors  good,  $2,500.00.  Debtors  bad, 
$250.00.  Debtors  doubtful,  $5,000  oo,  which  are  estimated  to  real- 
ize $3,750  oo.  Creditors  unsecured,  $13,000.00.  Creditors  partially 
secured,  $6,000.00;  estimated  value  of  security,  $4,000.00.  Creditors 
fully  secured,  $9,500.00,  estimated  value  of  security,  $12,000.00. 
Landlord,  creditor  for  rent,  $1,350.00,  of  which  sum  he  is  a  preferred 
creditor  for  $i?200.oo.  Factory  manager,  creditor  for  salary,  $750.00, 


68        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

of  which  sum  he  is  a  preferred  creditor  for  $250.00.  Liabilities  on 
notes  discounted,  $3,250.00,  all  of  which  are  expected  to  be  duly 
met  at  maturity.  Stock  of  merchandise  cost,  $4,250  oo,  estimated 
to  realize  $3,750.00.  Interest  in  a  lease  of  business  premises  esti- 
mated to  be  worth  $900.00.  There  is  a  liability  in  respect  of  a 
contract  which  the  Debtors  cannot  complete,  owing  to  the  failure, 
amount  unknown,  but  estimated  at  $1,500.00.  Bills  Receivable  on 
hand,  $375.00,  estimated  to  produce  $100.00. 

4.  The  following  Statements  of  Account  and  Balance  Sheets 
were  presented  to  the  members  of  a  club  in  the  two  years  men- 
tioned : 

Abstract  of  Receipt  and   Expenditures, 
for  the  Years  1908  and  1909 

Year  ended      Year  ended 
Dec.  31, 1908     Dec.  31, 1909 

To  Balance  for  preceding  year   $       4,000  oo    $       5,840  oo 

To    Entrance    Fees    received 4,98500  5,09500 

To  Subscriptions    37,870  oo          38,155  oo 

To  Subscriptions  received  in  advance  for 

1909  and  1910 420  oo  210  oo 

To  Sale  of   Provisions,  Etc 85,52500  76,19000 

To  Receipts  for  Billiards,  Cards,  Cigars, 

etc 6,1 10  oo  5,360  oo 

$   138,910  oo    $   130,850  oo 


By  Rents,  Taxes,  etc $     13,765  oo    $     14,055  oo 

By  Interest  9,385  oo  9,995  oo 

By  Purchases  of  Provisions,  Wines,  Etc.       74,900  oo          67,190  oo 

By  Billiards,  Cards,  Cigars,  etc 2,315  oo  2,000  oo 

By  Salaries  and  Wages 16,240  oo  16,155  oo 

By  Fuel,  Light,  Repairs,  Renewals,  Addi- 
tions to  Furniture,  etc 14,465  oo  18,625  oo 

By  Club  Debentures  paid  off 2,000  oo  2,000  oo 

By  Balances  at  Bank  and  in  Hand : 
1908  1909 

$20,675  oo    $16,450  oo 
Less :  Accounts  out- 
standing    includ- 
ed in  Expenditure 
above  ...,. $14,83500    $15,62000    $  5,84000  83000 

$  138,910  oo    $  130,850  09 


PRACTICAL  ACCOUNTING  69 

BALANCE  SHEET. 

Year  ended      Year  ended 
ASSETS  :  Dec.  31, 1908     Dec.  31, 1909 

Club  House  $  224,200  oo    $  224,200  oo 

Furniture,  China,  Glass,  Eetc. 
Balance,  Jan.  ist. 

1908  1909 

$30,000  oo  $30,915  oo 
Additions  to 
Dec.  3ist  $  4,350  oo    $  4,750  oo 


$34,350  oo    $35,665  oo 
Less: 

Depreciation... $  3,435  oo    $  3,565  oo         $  30,915  oo  $  32,115  oo 

Stock  of  Wines,  Etc 5,115  oo  4,875  oo 

Stock  of  Cigars,  Cards,  Etc 275  oo  375  oo 

Cash  at  Bank  and  in  Hand 20,675  oo  16,450  oo 


$281,180  oo    $278,015  oo 

LIABILITIES  : 

Year  ended  Year  ended 

Dec.  31, 1908  Dec.  31,  1909 

Club   Debentures    $  219,00000  $   217,00000 

Subscriptions  rec'd  in  advance    420  oo  210  oo 

Sundry   Creditors    14,835  oo  15,620  oo 

Balance  in  favor  of  the  Club  46,925  oo  45,185  oo 


$   281,180  oo    $   278,015  oo 


State  in  what  respect,  as  regards  information  or  otherwise,  you 
would  consider  the  above  Statements  and  Balance  Sheets  incorrect, 
and  unsatisfactory  to  the  members  of  the  Club. 


70        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

5.  Assuming  the  Assets  and  Liabilities  stated  on  the  above  Bal- 
ance Sheets  to  be  true,  and  the  analysis  of  the  Receipts  and  Pay- 
ments of  the  year  1909  to  be  accurate,  state  the  income  and  expendi- 
tures of  that  year  in  such  a  way  as  to  correctly  show  the  actual 
results  of  the  year's  operations. 

PART  II.— (Time,  3  hours.) 

6.  A.  and  B.  agree  to  dissolve  partnership  December  31,  1908. 
The  stated  Balance  Sheet  was  as  follows : 

ASSETS  : 

Merchandise    Inventory    $  57,500  oo 

Furniture    and    Fixtures    2,000  oo 

Accounts  Receivable   85,500  oo 

Bills  Receivable   (discounted) 14,000  oo 

Good  Will  5,ooo  oo 

$164,000  oo 

LIABILITIES  : 

Accounts  Payable   $  50,000  oo 

Bank    2,500  oo 

Bills  Payable 1 1,500  oo 

Bills  Receivable  (discounted)   14,000  oo 

A/s  Capital  account  53,5oo  oo 

B.'s  Capital  account  17,500  oo 

Income    account    15,00000 

$164,000  oo 

Profits  are  divisible,  A  4-7,  and  B,  3-7,  five  per  cent,  being 
allowed  on  capital,  and  no  interest  charged  on  drawings,  which 
were  upon  the  basis  of  $2,500.00  each.  A  continues  the  buisness 
and  assumes  all  liabilities.  B  opening  up  business  elsewhere  takes 
one-fourth  of  the  stock  and  agrees  to  leave  in  the  business  $2,500 
as  guarantee  for  one  year  against  floating  liability  for  bad  debts  and 
discounted  merchandise  notes,  and  to  receive  or  pay  any  balance  in 
cash,  any  amount  received  being  derived  from  accounts  due  the  firm. 

Prepare  A's  balance  sheet  after  dissolution  expressive  of  the 
terms  stated. 

7.  The    Energy    Manufacturing   Co.    draws    on    its    customer, 
Slopay  &  Company,  at   two  months   from  date,   January   i,   1910, 


PRACTICAL  ACCOUNTING  71 

$5,000  oo,  and  three  days  thereafter  discounts  the  draft  with 
the  City  National  Bank  at  five  per  cent,  per  annum  net. 

At  maturity  S.  &  Co.  confess  they  cannot  meet  the  draft,  but 
pay  the  E.  Mfg.  Co.  $3,000.00  on  account,  and  give  an  acceptance 
for  a  like  period  for  the  balance,  upon  condition  that  the  E.  Mfg. 
Co.  retire  the  original  draft,  which  is  done. 

Detail  serially  the  entries  by  which  the  E.  Mfg.  Co.  should 
record  these  transactions  on  its  books. 

8.  A  testator  directed  that   the  income  of  his  estate  should 
be  paid  to  the  widow  during  her  life  time,  and  in  the  event  of  her 
death  the  income  to  be  divided  equally  between  his  son  and  two 
daughters.    The  widow  died  on  August  I,  1908.    The  income  of  the 
estate   for  the  year   1908  was  as   follows : 

1908. 

Jan.  i.    Commonwealth  Electric,  interest   $30000 

Feb.  28.    Mortgage,  interest,  So.  Chicago 480  oo 

Mar.  31.    Mortgage,  interest,  Evanston 660  oo 

April  i.    Rent  of  barn  120  oo 

May  I.     Bank  dividend  510  oo 

June  2.    Santa  Fe,  interest 285  oo 

July  i.     Commonwealth  Electric,  interest  300  oo 

Aug.  31.    Mortgage  interest,  So.  Chicago  480  oo 

Sept.  30.    Mortgage  interest,  Evanston 660  oo 

Oct.  i.    C,  B.  &  Q.  R.  R.,  dividend 120  oo 

Nov.  i.    Bank  dividend  and  extra 765  oo 

Dec.  2.     Santa  Fe,  interest  285  oo 

Advances  to  widow  during  the  year — Jan.  31,  $250.00;  Mar.  28, 
$500.00 ;  July  25,  $1,500.00. 

Apportion  the  income  by  months  and  write  up  the  following 
accounts ;  considering  the  dates  of  payments  to  and  from  as  the  due 
dates : 

Cash  Account. 

Widow's  Account. 

Son's  Account. 

Each  Daughter's  Account. 

9.  In  investigating  the  records  and  accounts  of  a  business  on  be- 
half  of   a  purchaser  of   a   half   interest,   state  concisely     to  what 
points  you  would  direct  your  special  attention. 

(Limit,  150  words). 


72        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

10.  A  client  bought  a  business  for  $17,500.00,  basing  his  action 
upon  the  following  balance  sheet  of  December  31,  1909 : 

ASSETS  : 

Plant $  4,7io 

Merchandise  Inventory 7,385 

Accounts  Receivable   12,500 

Profit  and  Loss 2,010 

$   26,605 

LIABILITIES  :      Accounts    payable $    10,000 

$   16,605 

A  Charter  was  obtained  from  the  State  of  Illinois  with  an 
authorized  capital  of  $20,000.00,  the  balance  being  working  capital, 
$2,500.00  paid  in. 

Prior  to  opening  up  under  the  new  organization  the  Directors 
determined  to  write  off  $1,250.00  from  the  Accounts  Receivable, 
$210.00  from  the  plant  assets,  and  $885.00  from  the  inventory. 

At  the  first  semi-annual  accounting  they  showed  a  loss  from 
trading,  aside  from  a  depreciation  allowance  of  $600.00. 

Assuming  that  all  assets  and  liabilities  remain  as  at  the  start, 
subject  to  the  depreciation  now  allowed,  draw  up  a  Balance  Sheet 
as  of  June  30,  1910. 


CHICAGO,  ILL.,  MAY  24,  1911. 
PART  I.— (Time,  3  hours.) 

I.    The  Ledger  Balances  of  the  accounts  of  John  Smith  at  3ist 
December,  1910,  are  as  follows : — 

Accounts  Receivable  $   5,140  oo 

Accounts   Payable 2,692  oo 

Bills  Payable  658  oo 

Bills  Receivable   217  oo 

Loan  Advanced  by  J.  Smith  500  oo 

Cash    on    Hand 44  oo 

Bank    Overdraft    1,06500 

Inventory,  January  1st,  1910  3,020  oo 

Purchases    .                                           7,386  oo 


PRACTICAL  ACCOUNTING  73 

Sales     16,406  oo 

Wages    4,839  oo 

Office  Salaries 1,045  oo 

Travelling  Expenses   503  oo 

Interest  Paid 173  oo 

Stationery   284  oo 

Rent,  Taxes  and  Insurance 222  oo 

Discounts  and  Allowances   258  oo 

Machinery   Expense   and   Fuel    264  oo 

Freight     206  oo 

Incidental   Expenses 151  oo 

Commissions 50  oo 

Rents  Received 329  oo 

Capital   3,249  oo 

Bad  Debts 97  oo 


$48,79800 


Rent,  $200.00  a  year  is  charged  to  September  30th,  1910;  repairs 
to  engine  estimated  at  $90.00,  account  not  yet  received. 

Provide  2^  per  cent  on  Accounts  Receivable  for  discounts,  also 
$150.00  for  estimated  loss  by  bad  debts,  and  $20.00  for  interest  ac- 
crued on  loan. 

Prepare  Trading,  and  Profit  and  Loss  Account  and  Balance 
Sheet  as  at  December  3ist,  1910. 

2.  A  testator  bequeathed  by  his  will  legacies  amounting  to 
$6,700.00.  His  widow  was  to  be  paid  $1,000.00  within  one  month 
after  his  death,  and  his  household  furniture  was  specifically  be- 
queathed to  her.  $74.12  was  found  in  the  house  and  the  cash  at 
the  bankers  was  $1,842.91.  His  investments  were  valued  at  $48,- 
461.12  (their  nominal  value  being  $45,000.00).  His  real  property 
was  valued  at  $68,000.00.  Persons  were  indebted  to  him  for  loans 
without  interest  for  $450.00,  while  his  creditors  were  $7,276.54.  The 
funeral  expenses  came  to  $98.16,  probate  and  miscellaneous  ex- 
expenses  to  $4,697.45. 

Draw  a  statement,  showing  the  "corpus"  to  be  dealt  with  by 
the  executors,  assuming  that  the  investments  were  bonds  bearing 
interest  at  4  per  cent,  that  the  real  property  yielded  6  per  cent, 
that  the  former  were  paid  off  half-yearly,  and  the  latter  quarterly, 


74        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

and  that  both  interests  and  rents   fell  due  two  months   after  the 
testator's  death. 

3.  A  corporation  is   formed  Januray  ist  with  a  nominal  cap- 
ital   of   $5,000,000.00   in   $50.00    Shares.     There   is    a    first   issue   of 
50,000  shares,  $2.50  per  share  being  due  on  application ;  $7.50,  mak- 
ing $10.00  due  on  allotment,  Jauray  I4th,  $10.00  due  on  February 
ist,  and  $10,000  due  on  April  ist.    44,652  Shares  were  applied  for, 
and  43,822  were  allotted  on  January  i4th. 

Give  the  Journal  entries  required  to  record  these  facts. 

4.  James  Hewson     and  Walter  Fellows  had  been  in  partner- 
ship for  several  years,  and  at  December,   1909,  desiring  to  retire, 
they  entered  into  an  arrangement  to     dispose  of  their  business  to 
William  Jones,   on  the  general  terms  that  he,  Jones,   should  take 
over  everything  as  it  then  stood,  subject  to  the  following  condi- 
tions, viz: 

1.  Inventory  of  Merchandise  to  be  subject  to  a  rebate  of 

6  per  cent: 

2.  Accounts    Receivable   to   have   a   deduction   of   7J^   per 

cent.,  to  meet  possible  losses ; 

3.  Office  Furniture  to  be  subject  to  a  deduction  of   12*^ 
per  cent,   for  depreciation; 

4.  Liabilities  to  creditors  to  be  discharged  by  the  ist  of  Feb- 

ruary. 

On  the  exact  amount  required  to  be  paid  over  to  the  parties 
by  Jones  being  ascertained,  he  was  to  pay  one-fourth  in  Cash  on 
February  4th,  and  the  balance  by  equal  installments,  giving  his 
notes  for  the  same  which  are  paid  in  cash  as  they  fall  due,  dating 
from  January  ist,  at  three,  six  and  nine  months,  such  installments 
to  carry  interest  at  5  per  cent,  per  annum. 

The  inventory  of  Merchandise  on  hand  amounted  to  $21,800.00, 
the  accounts  receivable  to  $18,200.00  and  the  office  furniture  stood 
in  the  books  at  $1,250.00.  The  sums  due  to  creditors  amounted  to 
$6,250.00. 

You  are  asked,  as  representing  Jones,  to  prepare  the  Ledger 
Accounts  as  they  will  have  recorded  and  given  effect  to  the  fore- 
going arrangements  in  Jones's  ledger. 

5.  A   and  A  purchased  land  in   Porto   Rico  on  January   ist, 
1909,    and    started    a    tobacco    plantation,    the    former    bringing    in 
$100,000.00,    and    the    latter    $50,000.00    capital    in    cash.     Five    per 


PRACTICAL  ACCOUNTING  75 

cent,  per  annum  is  paid  upon  capital,  while  the  net  profits  or 
losses  are  divided  equally.  They  draw  as  partnership  salaries, 
$1,250.00  a  year  each  and  make  no  other  withdrawals. 

In  the  first  year  they  spend  $75,000.00  for  the  purchase  of  and 
payment  for  the  land,  buildings,  etc.,  and  $15,000.00  in  planting  the 
1910  crop,  which  was  sold  in  1910  for  $40,000.00,  but  upon  which 
had  been  paid  in  1910  and  up  to  the  date  of  the  Sale,  $2,500.00  for 
wages  and  sundry  expenses. 

In  1910  they  spent  $25,000.00  in  further  developing  the  estate 
and  $40,000.00  in  planting  the  1911  crop. 

Draw  a  Balance  Sheet  at  the  end  of  each  year?  1909,  and  1910, 
and  in  the  partners'  Capital  Accounts  therein  show  the  condition 
consequent  on  results,  there  being  no  other  assets  or  liabilities 
than  these  mentioned  above,  and  the  bankers'  debit  or  credit 
balance,  as  the  case  may  be. 

PART  II.— (Time,  3  hours.) 

6.  Having  been  employed  to  certify  to  the  profits  of  a  manu- 
facturing concern  for  the  past  five  years  for  prospectus  purposes, 
your  work  reveals  that  the  recorded  profits  require  adjustment  as 
follows : — 

Year  Ledger  Adjustment  Account 

1906  profit $54,920  oo     Reduce  by $  4,200  oo 

1907  "     69,100.00     Increase  by 8,52000 

1908  "     41,320  oo     Reduce  by 6,900  oo 

19091035    1,64000     Reduce  by 1,02000 

1910  profit 22,060  oo     Increase  by 1,360  oo 


Average    Profit $37, 150  oo     Net  Reduction  $     200  oo 

Those  interested  point  out  to  you  that  as  only  the  average  profit 
for  the  period  is  required  to  be  certified  to,  you  may  disregard 
the  small  difference  of  $200.00. 

State  succinctly  your  attitude  and  draft  the  certificate. 

7.  The  Directors  of  a  manufacturing  concern  incorporated  in 
Illinois  deem  it  expedient  to  pay  an  interim  dividend  out  of  the 
current  year's  profits,  therefore  at  the  close  of  the  seven  months' 
operations  require  you  as  the  Company's  Auditor  to  advise  them 
as  to  an  amount  that  would  not  then  nor  prospectively  for  the  bal- 


76        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

ance  of  the  fiscal  year  be  a  disbursement  out  of  capital.     State  in 
from  100  to  150  words  your  method  of  procedure. 

8.  On  June  I,  1910,  Corwin  &  Co.  discounted  at  five  per  cent 
per  annum  with  their  bank  a  three  months  note  dated  May  i,  1910 
for  $5,000.00.     The  bank's  semi-annual  accounting  takes  place  June 
30,  1910. 

What  entries  did  the  above  transaction  necessitate  on  the  books 
of  the  bank  (a)  on  June  I,  1910  (b)  on  June  30,  1910? 

9.  A   corporation  was   granted   a   charter   from  the    State  in 
October,    1910,   to   take    over   two   concerns    as   of   June   30,    1910; 
the  transfer  was  completely  effected  by  November  I,   1910.     Cap- 
ital Stock  (fully  paid)  $250,000.00. 

The  accounting  was  continued  in  the  books  of  the  purchased 
plants  until  June  30,  1911,  when  the  net  profits  for  the  year  were 
found  to  be  $10,500.00  and  $18,000.00. 

What  dividend,  apart  from  financial  considerations  would  such 
a  showing  justify? 

10.  Anderson  &  Bropks  are  equal  partners.    Their  balance  sheet 
on  June  30,  1910,  was  as  follows : 

ASSETS  : 

Merchandise  Inventory  $  35,000  oo 

Accounts  Receivable 61,000  oo 

Furniture  and  Fixtures 2,500  oo 

Cash 500  oo 

Investments   3,ooo  oo   $102,000  oo 


LIABILITIES  : 

Accounts  Payable $  50,000  oo 

Bank  Overdraft 15,000  oo 

Anderson's  Capital  21,000  oo 

Brooks'    Capital    16,000  oo  $102,000  oo 


Conway  is  to  enter  the  firm;  preliminary  thereto  Anderson  & 
B'rooks  revise  their  Balance  Sheet  by  writing  off  $15,000.00  for  bad 
debts,  $500.00  from  Furniture  and  Fixtures,  15  per  cent  from  in- 
ventory, 25  per  cent  for  loss  on  investments,  and  establish  a  good 
will  account  of  $5,000.00. 

Conway  pays  in  $5,000.00  as  his  one-third  interest,  to  which 
amount  the  other  parties  agree  respectively  to  adjust  their  capital. 

Give  the  starting  balance  sheet  of  the  new  firm, 


PRACTICAL  ACCOUNTING  77 

CHICAGO,  ILL.,  MAY  28,  1912. 
PART  I.— (Time,  3  hours.) 

i.  A  dispute  arises  between  two  Partners  carrying  on  a  Retail 
business  under  the  name  of  Levy  &  Mayer  and  you  are  called  in  to 
adjust  the  accounts  between  them,  when  you  find  the  following  con- 
ditions : 

(a)  The  books  have  been  kept  on  single  entry  and  it 

is  impracticable  to  go  over  the  accounts  in  suffi- 
cient detail  to  complete  the  double  entry. 

(b)  It  is  three  years  since  the  firm  has  had  an  account- 

ing, when  a  Balance  Sheet  was  prepared  (copy 
of  which  is  handed  to  you)  and  contains  the 
following : 

ASSETS — DECEMBER  31,  1908: 

Store  fixtures  $  15,000  oo 

Leasehold  (5  years  to  run)    5,00000 

Merchandise  on  Hand   35,coo  oo 

Customer's  Accounts   10,000  oo 

Cash  on  Hand  and  in  Bank 12,500  oo 

Prepaid  Expenses   2,500  oo 


$  80,000  oo 

LIABILITIES  : 

Accounts    Payable    $  15,000  oo 

A.   B.  Levy — Special  Loan    20,000  oo 

A.   B.  Levy — Capital  Account    30,000  oo 

W.  K.  Mayer         "          "          15,000  oo 


$  80,000  oo 

(c)  You  are  informed  that  Mr.  Levy's  Loan  bears  In- 
terest at  6%  per  annum  and  that  the  Capital  Ac- 
counts are  to  be  credited  with  Interest  at  5%. 
Also  that  Mr.  Mayer,  who  had  active  charge  of 
the  business,  is  to  receive  20%  of  the  Profits  in 
lieu  of  other  salary,  the  remaining  80%  of  the 
Profits  to  be  divided  between  the  Partners  in  pro- 
portion to  the  Capital  contributed. 


78        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

(d)     The  Inventory  as  taken  as  at  December  31,   1911, 
was  as  follows : 

Merchandise — 

Good    Condition    $  50,000  oo 

Old  Styles  and  Partly  Soiled  7,500  oo 

Obsolete  and  Useless    1,500  oo   $  59,000  oo 

Customer's  Accounts — 

Good    $  12,500  oo 

Doubtful 2,500  oo 

Bad  .  1,000  oo  $  16,000  oo 


Accounts   Payable    $i7,5oo  oo 

You  also  found  that  on  June  30,  1910,  Mr.  A.  B.  Levy's  Special 
Loan  had  been  repaid  with  Interest  and  that  a  5%  Loan  had  been 
obtained  from  the  Bank  for  $10,000.00,  and  that  the  Cash  in  Bank 
and  on  Hand  at  December  31,  1911,  was  $15,000.00,  while  the  Bank 
Interest  Prepaid  was  $250.00,  and  Insurance  Premiums  Prepaid 
amounted  to  $3,000.00.  The  Partners'  Drawings  on  account  of 
Profits  and  Interest  and  Commissions  were  found  to  be  as  follows : 

A.  B.  Levy    W.  K.  Meyer 

In  1909 $12,000  oo          $16,000  oo 

In  1910 15,000  oo  15,000  oo 

In  1911  18,000  oo  20,000  oo 


$45,000  oo         $51,000  oo 


After   consultation  with   the   Partners   it  was   agreed  to   write 
50%  off  the  value  of  the  "Old  Style  and  partly  soiled"  goods  and 
off   the    Doubtful   Accounts    Receivable    and   to    consider    the    Bad 
Accounts  and  Obsolete  and  useless  material  to  be  of  no  value. 
You  are  required  to  draw  up  the  following: 

(1)  A  statement  showing  how  you  arrive  at  the 

Profit  and  Loss  for  the  three  years,  show- 
ing also  the  disposition  thereof. 

(2)  The    Partner's   Accounts. 

(3)  A  Balance  Sheet  at  December  31,  1911,  after 

making   the   necessary   adjustment    of    the 
accounts. 

(i2l/2  Credits) 


PRACTICAL  ACCOUNTANCY  79 

2.  Thomas  Higgins  died  in  1895  leaving  his  entire  estate  in 
trust  for  the  benefit  of  his  widow,  and  upon  her  death  to  be  given  to 
his    children;    the   Trustees,    upon    discovering   a    large    Contingent 
Liability   which   might    eventually   fall   upon   the   Estate,    refrained 
from  paying  out  any  Income.     The  widow  dies,  thereby  releasing 
the  liability;  therefore,  the  estate  is  to  be  divided  into  three  equal 
parts. 

Prepare  a  Trial  Balance  and  statement  showing  the  value 
of  the  estate,  from  the  following,  and  without  displaying  Ledger 
accounts  or  Journal  entries : 

Income    $  1,025  90 

Accounts  due  T.  H 12,046  oo 

Taxes — Inheritance  7,222  oo 

Trustees  Expense  257  50 

Legacies   557  oo 

Mortgages  Paid 3,931  oo 

Funeral    Expenses    51150 

Accounts  payable 245  oo 

Law  Expense 388  50 

Investments  by  Trustee 12,755  oo 

Cash  in  Bank 270  oo 

(10   Credits) 

3.  On  December  31,  1911,  the  Balance  Sheet  of  the  A.  B.  Silk 
Company  (a  Missouri  Corporation)  was  as  follows : 

Dr.  Cr. 

Real  Estate $    100,000  oo 

Buildings  175,000  oo 

Plant  and  Equipment 250,000  oo 

Inventories    500,000  oo 

Accounts  Receivable   350,000  oo 

Cash  in  Banks 75,ooo  oo 

Cash  on  Hand 5,ooo  oo 

Interest  and  Insurance  Prepaid 7,50000 

Capital  Stock  $   300,000  oo 

Accounts    Payable    150,000  oo 

Notes  Payable  650,000  oo 

Taxes    and   Interest   Accrued 15,00000 

Surplus 347,500  oo 


$1,463,500  oo    $1,^4621,500  oo 


8o        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

Owing  to  certain  difficulties  in  conducting  the  business  under 
a  Missouri  Charter  it  was  decided  to  transfer  the  entire  business  to 
an  Illinois  Corporation  and  accordingly  a  Contract  of  Sale  was 
entered  into  whereby  the  Assets  and  Properties  were  to  be  sold  to 
the  new  Company  for  the  sum  of  $1,815,000  oo,  payable  as  to 
$1,000  ooo.oo  in  Preferred  and  Common  Stock  of  the  new  Com- 
pany, viz. — 

5,000  Shares  6%   Cumulative  Preferred  Stock ..  $500,000  oo 
5,000  Shares  Common  Stock 500,000  oo 

and  the  balance  by  the  assumption  by  the  new  Company  of  the 
existing  Liabilities  .of  the  old  Company.  The  necessary  resolutions 
of  the  Directors  and  Stockholders  of  both  Companies  were  duly 
passed,  and  the  transaction  was  duly  consummated.  As  a  preliminary 
step,  however,  the  Real  Estate,  Buildings,  Plant  and  Equipment 
were  valued  by  a  firm  of  local  appraisers,  when  the  following 
valuations  were  disclosed: 

Real  Estate  $250,000  oo 

Buildings    160,000  oo 

Plant  and  Equipment 300,000  oo 

Draw  up  the  necessary  Journal  Entries  (a)  for  the  closing  of 
the  books  of  the  Missouri  Company ;  and  (b)  for  the  opening  of  the 
books  of  the  Illinois  Company;  and  prepare  Trial  Balance  of  both 
Companies  after  your  Journal  Entries  have  been  given  effect  to. 

(10   Credits) 

4.  A  firm  of  three  Partners  with  equal  capital  and  interest 
operate  for  three  years,  when  the  Junior  withdraws. 

The  Partnership  Agreement  provides  that  a  retiring  Partner 
shall,  in  addition  to  his  capital  and  share  of  Profits^  receive  by 
way  of  Goodwill  two  years  purchase  of  his  share  of  the  average 
profits  shown  for  the  three  years  next  preceding  the  date  of  with- 
drawal. 

Make  out  a  Balance  Sheet,  Profit  and  Loss  Account  and  an 
account  with  the  retiring  Partner  as  of  June  30,  1911,  from  the 
following  memorandum  handed  to  you  with  your  instructions,  on 
September  3,  1911,  allowing  for  the  Depreciation  of  Plant  Account 
5%,  on  Leasehold  Account  15%,  and  for  Discount  and  possible  Loss 
on  Accounts  Receivable  10%. 


PRACTICAL  ACCOUNTANCY  81 

The  profits  for  the  two  previous  years  were  respectively 
$44,540.00  and  $55,050.00. 

Capital $  60,000  oo 

Plant,  Tools  and  Equipment 37,ioo  oo 

Leasehold 1 1,250  oo 

Merchandise    Inventory — July    I,    '10     (Net 

after    deducting    Reserve    of    $13,470.00) .     12,000  oo 

Merchandise  Inventory — June  30,  1911 19,000  oo 

Accounts  Receivable 48,500  oo 

Accounts  Payable   46,975  oo 

Merchandise  Sales    I37,97o  oo 

Merchandise    Purchases    69,510  oo 

Wages  1 1,500  oo 

General  Expense  3,900  oo 

Bank   9,935  oo 

A's  Drawing  Account 13,750  oo 

B's        "  13,750  oo 

Cs        "  "        13,750  oo 

The  reserve  against  the  Merchandise  Stock  which  was  of  a 
very  perishable  nature,  was  found  in  the  final  settlement  of  the 
accounts  with  the  Retiring  Partner  not  to  be  required. 

(10  Credits) 

Answer  EITHER  ONE  of  the  following  TWO  Questions: 

5.  A  Manufacturing  Company  requiring  additional  funds 
makes  application  at  a  Banker's  for  a  Loan  of  $200,000.00,  submit- 
ting in  support  of  the  request  its  final  annual  financial  statement 
as  at  November  30,  1911;  the  request  for  the  Loan  being  made  in 
May,  1912.  The  Banker  is  disposed  to  make  the  Loan,  but  before 
doing  so  he  requires  a  statement  of  a  more  recent  date,  as  late, 
if  possible,  as  April  30,  1912,  when  it  develops  that  the  Company 
only  takes  Inventory  and  closes  its  books  once  a  year  and  does  not 
maintain  such  a  system  of  accounting  as  will  permit  of  regular 
monthly  Balance  Sheets  and  monthly  Profit  and  Loss  Accounts 
being  prepared.  You  are  then  called  in  to  advise  what  should  be 
done  and  are  finally  instructed  to  prepare  the  best  statement  you 
can  as  at  April  30,  1912,  it  being  understood  that  no  Physical  Inven- 
tory is  to  be  taken,  and  that  you  are  not  to  make  a  complete  audit 


82        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

at  this  time.  How  would  you  proceed  and  what  kind  of  a  state- 
ment would  you  prepare?  Give  a  specimen,  leaving  out  figures, 
assume  the  business  is  that  of  Farm  Wagon  Manufacturing,  where 
a  steady  average  ratio  of  Profit  has  been  maintained  for  a  number 
of  years  past. 

(7Y2  Credits) 

6.  A  Water   Company  finds  it  necessary  to  renew   a  line  of 
service    mains    which    cost    $50,000  oo    seven    years    ago.      Double 
capacity  is  now  advisable  for  which  the  outlay  will  be  $80,000.00. 
Depreciation   at    10%   per   annum   has   been    regularly    charged   on 
the  first  installation. 

Draft  the  necessary  Journal  Entries  to  meet  the  essential  facts. 
(7Y2  Credits) 

PART  II  (Time  3  hours) 
Answer  ALL  of  the  following  FOUR  Questions: 

7.  From  the  following  Trial  Balance  and  information  furnished, 
draw   up —    (i)    A   Cost   Sheet;    (2)    A   statement   of    Profits   and 
Income;  and  (3)  A  Balance  Sheet,  showing  also  such  intermediary 
accounts    (if  any)    as  may  be  necessary  to  connect — (a)    the  Cost 
Sheet   with  the   Statement  of    Profits   and  Income ;   and    (b)    The 
statement  of  Profits  and  Income  with  the  Balance  Sheet. 

A.    B.    IRON    COMPANY 
TRIAL    BALANCE— DECEMBER    30,    1911. 

Real  Estate   $   200,000  oo 

Buildings  500,000  oo 

Furnaces,  Plant  and  Equipment 1,400,00000 

Capital  Stock  authorized  $1,000,000  oo 

Stock   Subscriptions  unpaid   200,000  oo 

Stock  in  Treasury    50,000  oo 

5  per  cent.  First  Mortgage  Gold  Bonds 

due  December  30,  1921,  authorized 500,000  oo 

5  per  cent.  First  Mortgage  Gold   Bonds 

Redeemed   100,000  oo 

Purchase  Money  Obligations 200,000  oo 

Ore— 248,620  Tons  at  $2.50  per  Ton 621,550  oo 

Advances  on  Ore  Contracts 50,000  oo 

Coke— 211,400  Tons  at  $3.25  per  Ton 687,050  oo 


PRACTICAL  ACCOUNTING 


83 


Limestone — 45,900  Tons  at  $1.00  per  Ton  45,900  oo 

Supply  Stores  on  hand  Dec.  30,  1911 25,000  oo 

Customers'  Accounts 350,110  oo 

Bills  Receivable 50,000  oo 

Sundry  Debtors    10,000  oo 

Bills  Payable  350,000  oo 

Accounts   Payable    310,000  oo 

Reserve  for  Bad  Debts 12,000  oo 

Cash  in  Bank 235,000  oo 

Working  Funds 5,ooo  oo 

Depreciation  Reserve 115,000  oo 

Blast   Furnace   Relining  Fund 45,00000 

Pig    Iron   on    hand   Jan.    I,    1911    (6500 

Tons  97,5oo  oo 

Discount  on  Bonds   20,000  oo 

Exploration  and   Development  Expendi- 
tures     17,500  oo 

Surplus   January   i,    1911    583,88700 

Furnace  Labor 138,750  oo 

Handling  and  delivering  ore  to  ore  stock  24,862  oo 
Handling    and    delivering   coke   to    coke 

stock  10,570  oo 

Handling    and    delivering    limestone    to 

limestone  stock  2,245  oo 

Repairs  and  Maintenance 15,500  oo 

Electric   Light  and   Power    9,500  oo 

Blowing  10,000  oo 

Laboratory  Expense 4,000  oo 

Yard  and  Switching  Expenses 14,200  oo 

General  Works  Expense 19,750  oo 

Taxes  5,200  oo 

Insurance 7,800  oo 

Pig  Iron  Sales  (109,500  Tons) 1,971,000  oo 

Allowances  to  Customers 54,5oo  oo 

Salesmen's    Salaries   and    Commissions..  50,90000 

Traveling  Expenses 2,500  oo 

Stationery  and  Office  Expenses   4,500  oo 

General  and  Administration   Expenses..  15,00000 

Profit  on  sale  of  purchased  Pig  Iron 25,500  oo 

Miscellaneous  Income    17,500  oo 


84        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

Interest   on   Bonded   Debt 15,00000 

Interest  on  Bills  Payable 22,000  oo 

Expenditures    incurred    on    account    Re- 
lining  Blast  Furnace  38,500  oo 


$5,129,887  oo    $5,129,887  oo 

The  production  of  Pig  Iron  for  the  year  was  115,000  Tons, 
and  the  Materials  consumed  or  used  to  obtain  this  production  were : 

Ore    240  ooo  Tons 

Coke 210,000  Tons 

Limestone 40,000  Tons 

The  Bond  Interest  Accrued  and  not  taken  upon  the  books 
was  $5,000.00,  while  Interest  amounting  to  $4,000.00  on  Bills  Pay- 
able was  paid  in  advance.  There  was  $5,000.00  of  Furnace  Labor 
Accrued  but  not  paid.  The  Taxes  accrued  but  not  taken  up  on 
the  books  were  $2,300.00,  exclusive  of  Federal  Corporation  Tax, 
which  should  be  provided  for,  and  Insurance  Premiums  Paid  in 
advance  amounted  to  $1,800.00.  A  provision  of  i5c  per  ton  of 
production  should  be  made  for  Relining  Furnaces;  and  the  Di- 
rectors authorized  a  further  provision  for  General  Depreciation 
of  Buildings,  Plant  and  Equipment  of  $50,000.00.  The  Discount 
on  Bonds  should  be  absorbed  over  the  life  of  the  Bonds  and  one- 
fifth  proportion  should  be  written  off  the  Exploration  and  Develop- 
ment Expenditures. 

In  calculating  the  Cost  Units,  you  need  not  figure  beyond 
two  places  of  decimals ;  and  in  making  these  calculations  the 
Operating  Expenses  (as  distinct  from  Materials)  may  be  grouped 
into  two  classes,  viz.:  (i)  Labor;  and  (2)  All  other  Operating 
Expenses.  All  other  unit  costs  may  be  ignored. 

(15  Credits). 

8.  White  and  Black  agree  to  sell  their  business  to  a  Corpora- 
tion for  $175,000  oo,  including  book  debts,  Stock  and  Plant,  pre- 
cisely as  they  figure  in  the  Balance  Sheet  to  be  made  up  as  of 
December  31,  1911,  without  Reserve,  but  Bills  Receivable  and  Pay- 
able are  not  included.  The  new  Company  assumes  the  Liabilities 
in  open  account.  White  and  Black  agree  to  bear  the  preliminary 
expenses,  such  as  advertising,  and  a  portion  of  the  legal  charges, 
which  amount  to,  say,  $625.00. 


PRACTICAL  ACCOUNTING  85 

The  Company  takes  possession  at  the  close  of  business  De- 
cember 31,  1911,  but  the  actual  transfer  is  delayed  until  March 
25,  1912,  by  which  time  the  Notes  Payable  have  been  taken  up. 

The  Balance   Sheet  of  December  31,   1911,  is  as  follows: 

Merchandise  $17,555  58  Accounts  Payable $16,086  oo 

Plant    5,ooo  oo  Bills  Payable   5,ooo  oo 

Accounts  Receivable. . .   51,620  87 Johnson  Loan 2,500  oo 

Bills  Receivable 7,145  oo  Interest  thereon  31.25 

Bank  1,182  50  Reserve  for  Rent  and 

Taxes    636  70 

Reserve  for  Bad  Debts       750  oo 

White  Capital 32,500  oo 

Black  Capital  25,000  oo 


$82,503  95  $82,503  95 


State  the  account  as  between  the  vendors  and  the  Company 
and  as  to  the  respective  Partners — the  Company  pays  5  per  cent. 
Interest  on  the  Partner's  Capital,  and  all  Profit  otherwise  made 
is  divisable  as  usual — White  3~5ths,  Black  2-5ths. 

Interest  due  December  31,  1911 — $31.25  to  W.  Johnson  Loan 
Account,  has  been  paid  in  the  interim  out  of  the  business. 

(10   Credits). 

9.  Owing  to  a  rapid  growth  of  the  business  the  A.  B.  Company 
found  it  necessary  to  raise  additional  funds,  and  accordingly  on 
January  i,  1911,  it  entered  into  an  agreement  with  a  Bond  House 
for  an  issue  of  $500,000.00  First  Mortgage  6  per  cent.  Gold  Bonds, 
which  were  ultimately  sold  to  the  Bond  Brokers  at  95  per  cent,  of 
Par ;  the  Company  also  paying  as  additional  compensation  to  the 
Brokers  a  Commission  of  2  per  cent.  The  Expenses  of  the  Issue, 
including  Legal  Expenses  for  drawing  the  Mortgage,  etc.,  cost  of 
Engraving  the  Bonds  and  Trustees'  Fee,  were  $10,000.00,  the  Net 
Proceeds  of  the  issue  being  finally  paid  over  to  the  Company's 
Treasurer.  During  the  year  1911  the  Company  made  Net  profits 
of  $150,000.00  after  providing  or  setting  aside  $50,000.00  for  the 
Depreciation  and  Obsolescence  of  Properties,  and  it  also  paid  a 
Dividend  to  Stockholders  of  $50,000.00.  The  Real  Estate  was  also 
appraised  during  the  year  at  an  increased  valuation  of  $25,000,00, 


86        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

which  was  credited  to  Surplus  Account.  The  financial  position 
of  the  Company  on  Jan.  i,  1911,  (before  the  Bond  Issue  was  ne- 
gotiated), and  again  on  December  31,  1911,  the  end  of  the  Com- 
pany's fiscal  year,  are  set  out  below,  from  which  you  are  requested 
to  prepare  a  brief  and  intelligent  statement  showing  what  was 
done  with  the  new  funds  provided  as  indicated  above. 

i 

A.    B.   CO.    BALANCE   SHEET. 

January  i,  1911  December  31,  1911. 

Capital  Stock  $  $250,000  oo  $  $   250,000  oo 

6  per  cent  ist  Mtg. 

Gold  Bonds 500,000  oo 

Real  Estate  50,000  oo  75,ooo  oo 

Buildings,   Plant 

Equipment,      a  t 

cost   300,000  oo  425,000  oo 

Inventories  at  cost  200,000  oo  350,000  oo 

Accts.  receivable. .   150,00000  245,00000 

M'k'able  Securities     50,000  oo 

(sold   during yr. 

for  $40,000.00, 

loss  of  $10,000.00 

being  charged 

off    to    profit 

and  loss  Acct.) 
Advances  on  build- 
ing contracts  . . .  20,000  oo 
Cash  on  hand  and 

in  Bank  35,ooo  oo  85,000  oo 

Notes  payable 

Bankers'  Loans  200,000  oo 

Accounts  payable.  150,000  oo  100,000  oo 

Depreciat'n  res've  75,ooo  oo  125,000  oo 

Exp.  bond  issue..  10,000  oo 

Surplus    110,00000  235,00000 

$785,000  00  $785,000  00  $1,210,000  00  $1,210,000  00 

(10  Credits). 


PRACTICAL  ACCOUNTING  87 

10.  A   Partnership  between   three  persons   had   run   for  three 
years  upon  the  following  Capital  and  interest  in  Profits : 

A    $9,000.00 3-8    Interest 

B      8,250.00 3-8    Interest 

C      2,000.00 1-4    Interest 

The  Annual  Profits,  which  had  been  credited  to  the  Partners' 
Personal  Accounts,  were  as  follows : 

1908   $30,510  75 

1909   29,026  30 

1910  37,026  75 

Thereupon  C  expressed  his  dissatisfaction  and  announced  his 

intention  of  dissolving  the  Agreement  on  December  31,  1910,  so 
far  as  he  was  concerned,  unless  he  was  placed  in  the  same 
position  as  to  Profits  as  A  and  B,  dating  back  to  the  opening  of 
the  Agreement,  January  i,  1908. 

A  and  B  agree  to  this  provided  C  will  agree  to  a  transfer 
from  his  Personal  Account  of  a  sum  sufficient  to  equalize  the 
Capital  Accounts.  This  is  accepted  by  C  subject,  however,  to  the 
aggregate  stated  Profits  being  revised  by  charging  A's  Capital  Ac- 
count with  $2,250.00,  and  $1,500.00  against  B's  Capital  Account, 
also  that  $1,250.00  be  charged  to  Office  Furniture. 

Assuming  the  books  to  have  been  closed  each  year  under  the 
original  terms  of  Agreement,  draft  the  Journal  Entries  necessary 
to  adjust  the  Accounts  and  show  the  relative  condition  of  the 
respective  Capital  and  Personal  Accounts  at  the  opening  of  the 
new  Partnership,  January  i,  1911. 

(10  Credits). 
Answer  EITHER  ONE  of  the  following  TWO  Questions: 

11.  On   January    i,    1910,    XYZ   Company  acquired   the   entire 
Capital  Stock  of  the  PQ  Company,  consisting  of  1,000  Shares  of  a 
Par    Value    of    $100.00    each,    for    which    was    paid    the    sum    of 
$150,000.00.     After  the  transaction  was  recorded  on  the  books  of 
the  XYZ  Company,  the  Balance  Sheets  of  the  two  Companies  were 
as  follows : 

XYZ  Company  PQ  Company 

Real  Estate $  50,000  oo  $  $  25,000  oo   $ 

Building,  Plant  and 

Equipment    75,ooo  oo  45,ooo  oo 


88 


ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 


Goodwill    25,000  oo 

Investment  in  PQ 

Co 150,000  oo 

Inventories   80,000  oo 

Accounts  Receiva- 

able  70,000  oo* 

Accounts   Payable. 

Loans  

Capital  Stock  .... 
Surplus    


20,000  oo 


85,000  oo 


50,000  oo 

50,000  oo 

250,000  oo 

100,000  oo 


50,000  OOH 

100,000  oo 
25,000  oo 


$350,000  oo  $450,000  oo  $175,000  oo  $175,000  oo 

*  Includes  Account  of  $15,000.00  due  by  PQ  Company  to  XYZ 
Company. 

Prepare  a  Consolidated  Balance  Sheet. 
(5  Credits). 

12.  Three  merchants,  A.,  B.  and  C.  decide  to  commence 
business  and  pay  in  as  Capital  $25,000.00,  $15,000.00  and  $10,000.00, 
respectively.  Profits  or  Losses  to  be  apportioned  correspondingly. 
At  the  end  of  the  first  year  an  account  is  taken  showing  a  profit 
of  $7,500.00.  A  withdraws  from  the  firm,  and  after  an  amount 
is  agreed  upon  as  an  allowance  for  Bad  Debts,  viz.,  $1,250.00,  he 
is  paid  off  in  Cash,  and  B.  and  C.  take  over  the  business  jointly. 

Draft  the  necessary  Entries,  showing  the  closing  and  adjust- 
ment occasioned  by  the  change. 

(5   Credits). 


AUDITING 

CHICAGO,  Nov.  20  AND  30,  1903 
(Time  3  Hours.) 

1.  What   is   the  general   course   for  an   accountant  to   follow 
in  making  a  regular  annual  audit  of  the  books  of  a  manufacturing 
corporation? 

2.  Where  a  number  of  manufacturers  contemplate  consolidat- 
ing, what  means  should  be  taken  to  insure  the  statements  of  assets 
and  liabilities  and  profits  being  on  the  same  general  plan? 

3.  What   is   the  best  method   for   carrying  additions   to   plant 
on  the  books   of  a  manufacturing  corporation?     Give  reason  for 
answer. 

4.  Is  an  auditor  in  any  way  responsible  for  the  validity  of  the 
transactions    shown    on    the   books    of    a   business?      What   means 
should  be  taken  by  an  auditor  to   satisfy  himself  of  the  accuracy 
of  the  entries  on  ledgers,  cash  books,  journals  and  sales  books? 

5.  What  is  the  auditor's  responsibility  in  the  matter  of  vouch- 
ers for  payment?     What  is  his  responsibility  where  there  are  not 
any  regular  vouchers? 

6.  Can  an  examining  accountant  satisfy  himself  of  the  general 
correctness    of    inventories    without    himself    taking    the    quantities 
and  verifying  the  prices,  extensions  and  additions?     Give  full  par- 
ticulars. 

7.  Where  the  books  of  a  co-partnership  or  corporation  show 
large  additions  to  buildings  and  machinery,  consisting  of  portions 
of    pay    rolls,    without    explanation,    what    means    should    be    taken 
to  prove  or  disprove  the  accuracy  of  the  charges? 

8.  How    would    you    account    for    the    proceeds    of    sales    to 
customers  without  checking  each  entry? 

9.  What  means  should  the  auditor  take  to  satisfy  himself  that 
the  debts  of  a  business  are  on  its  books? 

10.  Give  a  list  of  the  books  of  a  corporation  which  the  auditor 
should  examine. 

89 


90        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

CHICAGO,  MAY  2,  1904. 
(Time  3  Hours.) 

1.  State   whether   depreciation   is    an    element   of   the   cost   of 
manufactured  products.    If  so,  why? 

Explain  form  of  journal  entry  necessary  to  carry  depreciation 
on  the  books,  and  explain  how  it  would  be  shown  on  the  balance 
sheet. 

2.  What  course  should  be  followed  in  making  an  annual  audit 
of  a   trust  company  in   Illinois  and  what  are  the   more  important 
features  of  the  business  to  be  given  consideration?    The  trust  com- 
pany,   in   addition   to    its    ordinary   banking    features,    also    handles 
various    trusts,    acting   as    trustee,    administrator,    conservator    and 
guardian. 

3.  In   auditing  the   accounts  of  a  railroad  company,  what  is 
necessary  to  determine  whether  the  equipment  has  been  fully  main- 
tained? 

4.  What    course   is    necessary    for   the    auditor    to    follow    to 
satisfy  himself   that   all   outstanding  liabilities   are   included   in   his 
balance  sheet?    How  would  he  proceed  to  verify  the  current  assets? 

5.  In    passing   upon   the  value    shown   in   the   inventory   of    a 
leaf  tobacco  house,  how  should  the  auditor  treat  leaf  costing  $12.00 
per  cwt.  when  the  market  price  is  $10.00  per  cwt,  and  when  the 
market  price  is  $15.00  per  cwt.?     State  reasons   fully. 

6.  What  rules  should  the  auditor  follow  in  distinguishing  be- 
tween capital  and  maintenance  expenditures? 

Are  working  or  job  orders,  covering  a  company's  expenditures 
on  its  own  account,  of  any  value  to  the  auditor  when  examining  the 
general  books? 

7.  What  means  should  be  taken  to  verify  a  corporation's  in- 
debtedness  in   respect  to  mortgage  bonds  and  capital   stock? 

8.  After    the    organization    of    a    corporation,    it    proceeds    to 
construct    a    manufacturing    plant,    paying    for    the    same    in    cash 
realized   from   the   sale  of   capital   stock   at  80  cts.   on   the  dollar. 
When  ready  for  operation,  what   items  would  be   included  in  the 
cost  of  such  a  plant? 

9.  In   auditing  the  books  of   a  business  which   is  to  be  dis- 
posed  of    and   where   the    seller   guarantees   to    the   purchaser   the 
open    accounts    receivable,    what    action,    if    any,    should    be    taken 
by  the  auditor  as   to  such  accounts   receivable? 


AUDITING  91 

10.  A  Chicago  business  house  operates  a  number  of  branches 
in  different  cities  to  which  consignments  are  made  for  sale.  If 
employed  as  the  auditor  of  these  branch  houses,  what  general  course 
should  be  followed?  Submit  a  sketch  of  a  general  form  showing 
the  results  of  the  business  as  a  whole,  including  the  Chicago  house 
and  its  branches. 


CHICAGO,  Nov.  14,  1904. 

(Time  3  Hours.) 

i.  You  are  auditing  the  annual  accounts  of  a  company,  which 
possesses  amongst  other  assets  a  leasehold  warehouse,  the  lease  of 
which  has  still  another  forty  years  to  run  from  the  date  of  the 
last  balance  sheet,  at  which  time  it  stood  on  their  books  at  $100,000.00, 
and  this  amount  still  remains  unchanged.  The  lease  was  acquired 
ten  years  ago  on  the  formation  of  the  company  and  is  considered 
to  have  a  realizable  value  of  about  $150,000.00.  The  outlay  has 
been  incurred  as  to  $50,000.00  by  rebuilding  two  years  ago,  since 
which  time  nothing  has  been  written  off.  No  systematic  treatment 
of  the  subject  has  been  adopted,  but  considerable  sums  have  been 
written  off  from  time  to  time  out  of  the  profits  earned  in  the  pre- 
vious years.  Dividends  are  only  payable  out  of  the  profits  of  the 
company.  As  auditor  of  the  company  you  are  asked  to  decide 
between  the  following  views : 

(a)  Nothing  need  be  written  off  at  all,  because  the  property 
would  now  sell  for  what  it  stands  at  or  more. 

(b)  The    most   convenient   plan   is    to    continue   applying   oc- 
casionally such  profits  as   it  is  not  desired  to  distribute  the  divi- 
dends. 

(c)  An  equal  4Oth  part  should  be  written  off  annually. 

(d)  A  sinking  fund  should  be  created  and  compounded  so  as 
to  produce  $100,000.00  in  forty  years. 

Criticise  each  of  the  above  plans,  stating  which  you  recom- 
mend, if  any,  and  why. 

2.  You  are  appointed  the  auditor  of  an  estate  the  assets  of 
which  consist  of  Real  Estate  (Improved  City  and  Farm  Lands) 
Corporation  Stocks  (Common  and  Preferred),  Railroad  Bonds 
(with  coupons  attached  and  without  coupons  attached),  and  First 
Mortgages  on  Farm  Property.  How  will  you  verify  the  revenues 


92       ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

from  the  various  classes  of  assets,  and  what  procedure  would 
you  take  to  verify  the  existence  of  these  assets?  In  your  first 
audit,  what  would  be  the  first  two  things  you  would  examine? 

3.  An  investigation  of  the  details  of  an  inventory  dater  Janu- 
ary i,  1904,  brings  to  light  the  following  entry: 

Contract  dated  July  I,  1903,  for  delivery  of  20,000  tons  of 

between  January  ist  and  June  3Oth,  1904, 

at  $25.00  per  ton,  the  market  price  at  date  of  inventory  being 
$27.50, $50,000.00. 

Discuss  the  validity  of  the  above  entry  under  the  following 
circumstances : 

(a)  In  the  preparation  of  a  certified  balance  sheet  for  stock- 
holders' meetings. 

(b)  In  investigation  on  behalf  of  a  client  who  is  considering 
the   purchase   of   the   majority    of   the   capital   stock   of   the   com- 
pany. 

(c)  In    investigation    and    preparation    of    certified    balance 
sheet  for  the  Company    (the  Company  being  your   clients)   which 
they  desire  to  submit  to  their  bankers. 

4.  Describe  various  methods  by  which  you  would  satisfy  your- 
self that  the  total  Accounts  Receivable  on  a  Balance  Sheet  accur- 
ately represents  the  true  facts. 

5.  A  corporation   has  a  capital   stock  of  $100,000.00.     It  has 
assets  at  inventory  value  amounting  to  $160,000.00.     With  a  view 
to  reducing  the  number  of  its  enterprises,  it  sells  two  of  its  stores 
for   $85,000.00   at   inventory   value.     This   $85,000.00   is    distributed 
among   its  stockholders.     What   entries  should  be  made  upon  the 
books,    and   what   procedure    would   you    recommend    in    order    to 
safeguard  all  interests  in  making  such  distribution? 

6.  A  Company  incorporated  with  a  capital  of  $200,000.00,  fully 
paid    up,   has   sold   its   stock   at   a   premium   of  25   per   cent,   thus 
realizing    in    cash    $250,000.00.      The    By-Laws,    which    cannot    be 
amended    except    in    a    stockholders'    meeting    and    after    proper 
notice    of    such    amendment,    having   been    mailed    to    each    stock- 
holder  ten    days    prior   to   the   meeting,    contain   a    provision    that 
the  $50,000.00  so  received  over  and  above  the  capital  stock  at  par, 
shall  be  placed  to  the  credit  of  a   Special   Reserve  Account,   and 
that   this    fund    shall    not   be    applicable   towards    the    payment   of 
dividends.     At  the  close  of  the  first  fiscal  year,  it  is   found  that 
the   Company  has   made   a  net  profit   of   $4,000.00,   after   charging 


AUDITING  93 

$6,000.00  for  depreciation  on  the  buildings  and  machinery.  The 
directors  desire  to  pay  a  cash  dividend  of  five  per  cent  and  pass 
a  resolution  ordering  that  the  depreciation  referred  to  above  shall 
be  charged  against  the  above  Special  Reserve  Account  instead  of 
against  Profit  and  Loss,  and  they  then  proceed  to  declare  a  divi- 
dend of  five  per  cent.  Discuss  the  above  situation  from  the  stand- 
;"nt  of  an  accountant. 
7.  Describe  the  general  course  to  be  followed  in  making  a 
tional  Bank  examination. 
8.  While  auditing  the  accounts  of  a  jobbing  firm,  the  cashier 
1  bookkeeper  disappear.  The  client  believes  he  has  been  guilty 
of  embezzlement,  and  asks  the  auditor  to  report  as  quickly  as 
possible  to  him,  what  sum,  if  any,  has  been  taken.  The  auditor 
tests  postings  of  cash  from  customers  without  finding  irregularity, 
and  also  finds  that  receipts  have  been  taken  and  are  on  file,  for  all 
moneys  actually  paid.  Where  would  you  look  under  such  circum- 
stances for  the  method  pursued  by  the  probable  embezzler  in  cover- 
ing a  shortage? 

9.  Give  method  of  preparing  a  balance  sheet  where  ledgers 
have  not  been  closed. 

10.  In   the   case    of    a   consolidation   of   three   manufacturing 
concerns,    how   would   you   determine   the   good   will    of   the   con- 
solidated company? 


CHICAGO,  MAY  8,   1905. 
(Time  3  Hours.) 

1.  Give  particulars   of  course   to  be  followed  in  making  de- 
tailed   audit    of    the    accounts    of    a    grain    and    stock    brokerage 
house. 

2.  When  auditing  the  accounts  of  a  wholesale  grocery  house 
it  is  found  that  a  fire  has  just  destroyed  the  entire  stock  of  mer- 
chandise.    What  course  would  you  follow  to  approximate  the  in- 
ventory ? 

3.  At  the   first   annual   audit   of   the  books   and   accounts   of 
an   electric  street  railway  company  the  books  show  an  actual  in- 
vestment  exceeding  $1,000,000.00,   while   the   aggregate   amount   of 
repairs  and  renewals  for  the  year  have  been  but  $10,000.00.     What 
course  should  the  auditor  follow  in  preparing  Profit  and  Loss  Ac- 
count for  the  year? 


94        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

4.  Criticise  the  following  Profit  and  Loss  Account  and  Balance 
Sheet  of  a  private  firm  trading  in  provisions  from  the  point  of  view 
of  a  Bank  which  contemplates  advancing  $20,000.00  to  the  firm. 
The  clerical  accuracy  of  the  books  has  been  verified. 

PROFIT  AND  LOSS  ACCOUNT. 
(Year  Ending  December  3ist  1905). 

Stock  at   1-1-5 $  50,000  oo 

Purchases  40,000  oo 

Wages  and  Salaries 8,000  oo 

Office  and  Gen.  Exp 7,000  oo 

etc 15,00000 

Interest  on  Loans    2,700  oo 

Bad  Debts   800  oo 

Profit 37,ooo  oo 


$160,500  oo 


Sales,  less  returns  $  80,000  oo 

Stock  31-12-5 75,000  oo 

Dividends  on  investment 5,5oo  oo 


$160,500  oo 

BALANCE    SHEET. 

ASSETS. 

Book   Debts    $250,000  oo 

Stock  as  per  Inventory   75,ooo  oo 

Investments  at  Cost  50,000  oo 

Goodwill 10,000  oo 

Lease  on  Premises 5,ooo  oo 

Furniture,  etc 1,000  oo 

Cash  in  Hand 500  oo 


$39i,5oo  oo 


AUDITING  95 


r                                     LIABILITIES. 
Creditors    $344,500  oo 

Loans    27,000  oo 

Partners  Capital  Account  at  1-1-5 $    8,00000 

Profit  for  year    37,ooo  oo 


$  45,000  oo 


: — Drawings   during   year 25,000  oo       20,000  oo 


$391,500  oo 

5.  Before  certifying  a   Balance    Sheet  what   steps    should  an 
auditor  take   to   satisfy   himself   of   the   accuracy  of   the  valuation 
placed  upon  the  f ollowing  assets  :  ? 

a.  Stock  in  Trade. 

Ib.  Investments 

c.  Plant  and  Machinery, 

d.  Cash  in  hand  at  Branch  Establishments. 

e.  Patent  Rights, 

f.  Patterns. 

6.  It  is  contended  that  it  is  unnecessary  to  write  off  deprecia- 
tion on 

a.  Freehold  Premises. 

b.  Plant  and  Machinery. 

provided    that    they    are    maintained    in    a    full    state    of    efficiency 
out  of  revenue. 

Give  briefly  your  own   views  on  this   subject. 

7.  A  corporation   issues  bonds,   proceeds  to  be  used  for  con- 
struction purposes.     If  bonds   are  all   sold  at  a  discount,  to  what 
account  should  the  discount  be  charged?     If  sold  at  a  premium,  to 
what  account  should  the  premium  be  credited? 

8.  In    Auditing    the    'books     of    a    manufacturing    company, 
what  important  principles  are  involved?     Answer  fully. 

9.  In  a  public  utility  proposition,   how   does   the  auditor  best 
determine  the  reliability  of  the  revenue? 

In  passing  upon  discounts  and  bad  debts,  how  would  you  state 
them  in  reports? 

10.  Finance    corporations    holding   a   large   number   of    shares 
in  other  corporations  are  in  the  habit  of  valuing  their  securities  for 


96        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

Balance  Sheet  purposes  at  either  (a)  cost  price,  or  (b)  market  price 
at  the  date  of  the  Balance  Sheet. 

Discuss  the  respective  merits  of  the  two  methods  and  say  which 
you  consider  the  soundest  from  an  accountants'  point  of  view. 


CHICAGO,  MAY  9,  1906. 
(Time  3  Hours.) 

1.  You  are  called  upon  to  audit  the  books  of  a  "Holding  Com- 
pany", owning  90  per  cent  of  the  stocks  of  six  large  manufacturing 
companies   scattered  over  the   United    States.     From   the  books  of 
the   "Holding  Company"  you  are  requested  to  prepare  a  Certified 
Balance  Sheet  and   Profit  and  Loss   Account,   it  being  stated  that 
it  is  not  to  be  used  for  publication,  but  will  be  mailed  to  one  of 
the   shareholders   who   appears    to  be   disgruntled.     Balance   Sheets 
and  Profit  and  Loss  Accounts  of  the  subsidiary  companies  signed 
by   their   respective    Secretaries,   are   produced    for   your   inspection 
but  you  are  refused  access  to  the  actual  books  of  account  of  these 
companies.     Explain   fully  what  your   course   of   action   would  be 
in    this   matter    and   your    reasons    therefor. 

2.  In  an  audit  stipulating  for  the  examination  of  all  vouchers 
of  every  description,  what  would  be  proper  vouchers   for  the  fol- 
lowing:  purchases,   returned  purchases,   sales,  returned  sales,   cash 
receipts,  cash  payments,  journal  entries? 

3.  Y'ou  are  called  upon  to  examine  the  books  of  a  Life  In- 
surance   Company.      Explain    fully    how    you    will    verify    the    fact 
that  all   securities   carried  on   the  books   of   account  are   duly  ac- 
counted for,  and  your  method  of  carrying  out  such  verification? 

4.  You  are  called  upon  to  audit  the  books  of  account  of  the 
executors    and    trustees    of    an    estate.      The    executors    completed 
their  duties   18  months  after  the  death  of  decedent.     Explain  the 
essential  features  of  an  audit  of  this  character. 

5.  You  are  called  upon   to  make  a  balance  sheet  audit  of  a 
National   Bank  with  a   Capital  Stock  of  $1,000,000.00  and  deposits 
of    $10,000,000.00.      Explain    fully    how    you    will    verify    the    cash 
balances. 

6.  A  Construction  Company  is  carrying  out  work  on  a  num- 
ber of  contracts.     At  the  close  of  its  fiscal  year,   these  contracts 
are  in  all  stages  of  completion,   from  those  which  are  just  begun 
to  those  which  are  almost  finished.     How  should  you  compute  their 
value  as  an  asset  in  the  Balance  Sheet? 


AUDITING  97 

7.  What    step    would    you    take    to    satisfy   yourself    that   the 
h  receipts  of  a  business  for  a  year  are  as  stated  on  the  books? 

8.  In  determining  the  result  of  the  operations  of  a  comapny 
whose  business   requires   the  use  of   a  large  number  of   tools  and 
implements,    what   general    rule   would   you   consider? 

tg.     In  presenting  a   balance   sheet,  what   items   are  matter   of 
and  what  items  are  opinions,  and  taken  as  a  whole,  are  you 
Wishing  a   fact  or  an  opinion? 
10.      Can,    or    cannot,    a    going   concern,    employing   a    salaried 
[ager  and  superintendents,  charge  any  part  of  their  salaries  to 
cost  of  improvements  or  extentions  that  may  be  added  to  the  plant 
at  intervals?     In  either  view,  why? 

R  CHICAGO,  MAY  8,  1907. 

(Time  3  Hours.) 
i.    You  are  elected  the  auditor  of  a  corporation  by  the  holders 
both  common  and  preferred  stock  and  it  is  your  duty  to  safe- 
guard the  interests  of  both   classes  of  stockholders.     The  prefer- 
ence stock  bears  seven  per  cent  and  is  non-cumulative.     Mention 
what  precautions  you  would  adopt  to  safeguard  the  interests  of  the 
preference    shareholders,   giving  reasons   therefor. 

2.  A    club    obtaining   its    revenue   from   initiation    fees,    dues, 
restaurant,  wines,  cigars,  billiards  and  cards,  has  a  treasurer  who 
reads  to  the  directors  at  each  monthly  meeting,  a  statement  of  the 
receipts    and   disbursements   of   the   month    just   prior.     What   are 
the  advantages  of  such  a  statement  and  wherein  does  it  fall  short? 

3.  Referring  to   the  preceding  question  state  how  you  would 
handle    initiation    fees    in    the    preparation    of    the    Club's    Annual 
Report    containing    Balance    Sheet   and    Profit   and   Loss,    and   give 
your    reasons    therefor. 

4.  The  firm   of   Catchem  &  Cheatam  engage  in  a  restaurant 
business   where   all   sales   are   for   cash,   with  the   express    purpose 
of   at  a  later  date  selling  out  same  on  the  strength  of  the  large 
profits  shown  on  the  books.     With  the  object  in  view  they  grossly 
pad  their  sales  every  day  and  make  compensating  fraudulent  entries 
on  the  disbursement  side  of  the  cash  book  purporting  to  represent 
cash  withdrawals  of  partners,  and  all  records  by  which  the  cash 
sales    might    possibly    be    verified    are    destroyed.      Catchem    and 
Cheatam  make  a  proposition  to  Mr.  A.  to  sell  their  business  to  him 


98        ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

and  on  the  showing  of  profits  made  by  the  books,  Mr.  A.  seri- 
ously considers  the  same,  but  engages  a  certified  public  accountant 
to  make  an  examination.  The  Accountant  fortunately  discovers 
the  fraud.  How  did  he  probably  discover  the  fraud  and  what  was 
his  method  of  procedure? 

5.     The  audit  of  a  corporation  on  the  instructions  of  its  Presi- 
dent, reveals  the  following  condition: 

ASSETS. 

Real  Estate,   Plant  and  Machinery $  500,000 

Merchandise  of  all  kinds 200,000 

Bills  Receivable    50,000 

Accounts  Receivable   275,000 

Sundries  Accrued    4,500 

Cash 37,500 


$1,067,000 
LESS  LIABILITIES. 

Bills  Payable   $  250,000 

Accounts    Payable    40,000 


290,000 


Net  Resources  $     777,000 

The  Capital  of  the  corporation  is  $1,000,000  with  deficit  of 
$223,000.  The  audit  brings  out  the  fact  that  included  in  the 
Accounts  Receivable  is  an  item  of  approximately  $50,000  due  by 
the  President  of  the  Company.  In  certifying  to  the  Balance 
Sheet  the  President  requests  you  not  to  show  as  a  separate  item 
the  amount  due  by  him,  but  to  include  it  as  shown  above  in  the 
Accounts  Receivable  for  the  reason  you  are  informed,  that  your 
certificate  is  to  be  used  for  the  purpose  of  selling  $250,000  Bonds 
secured  by  mortgage  on  the  real  estate,  plant  and  machinery, 
the  proceeds  of  which  will  be  used  to  liquidate  the  present  bills 
payable.  The  President  of  the  Company  is  reported  to  be  worth 
$200,000  over  and  above  the  value  of  his  stock  in  the  above 
Company.  What  course  of  action  would  you  take?  State  reasons 
therefor.  If  the  certificate  was  stated  to  be  for  the  purpose  of 
handling  certified  balance  sheet  to  their  bankers  or  to  present  to 


l 

fo' 
to 

5 


AUDITING  99 

ntial  meeting  of  shareholders,  then  what  would  be  your  course 
action  and  why? 

6.  In  case  you  are  called  upon  to  audit  the  books  of  account 
f  an  executor  or  trustee  under  a  will,  state  your  method  of  pro- 
cedure and  also  show  briefly  how  you  would  prepare  the  acocunt 
in  the  most  intelligent  manner. 

7.  The  senior  member  of  a  firm  of  Certified  Public  Account- 
ts    employing   about    fifty   assistants    having   arrived    at   an    age 

hen  he  no  longer  cares  to  be  actively  engaged,  retires;  but  the 
rtnership    agreement   provides   that   he   shall    still    retain   a   one- 
ourth  interest  in  the  profits  on  account  of  the  goodwill  attached 
to  his  name.    Three  years  after  he  has  ceased  to  be  actively  engaged 
the  business,  the  profits  drop  considerably,  and  fearing  that  his 
rtners  are  not  acting  squarely  he  proceeds  to  audit  the  accounts 
the  firm.     If  you  were  in  his  place  how  would  you  proceed  to 
udit  same  and  satisfy  yourself  that  everything  was  properly  ac- 
counted for  or  otherwise? 

8.  An  auditor  is  engaged  by  a  man  who  is  buying  an  interest 
a  firm,   for  the  purpose  of  reporting  upon  the  assets  and  lia- 

lities  of  the  firm  as  at  a  given  date  and  upon  the  profits  of  the 
ree  years  just  prior.  Upon  the  auditor's  report  he  purchased  an 
terest  in  the  firm  and  in  its  assets  and  liabilities.  Six  months 
ter  it  is  discovered  that  there  were  bills  payable  due  by  the  firm 
minting  to  $10,000  at  the  time  the  auditor  made  his  examination 
d  not  reported  upon  by  him  and  that  these  bills  had  continuously 
due  by  the  firm  for  one  year  prior  to  such  examination,  but 
record  of  same  had  been  made  upon  the  books.  Under  what 
rcumstances  could  the  auditor  be  considered  guilty  of  negligence 
not  discovering  this  fact  and  under  what  circumstances  could  he 
considered  entirely  free  of  any  blame  in  the  matter. 

9.  An  auditor  is  called  upon  to  verify  a  Balance  Sheet  and  upon 
vestigation   he   finds    that    uriexpired   insurance   interest   paid   in 
vance     on     discounted     notes,     taxes     accrued,    interest     accrued 

demand  notes  and  bonded  indebtedness,  royalties,  etc.,  are  not 
eluded  in  same.  He  is  informed  that  it  has  not  been  the  custom 
f  the  corporation  to  include  in  their  balance  sheet  such  items, 
they  offset  one  another,  and  that  the  Directors  do  not  desire  any 
nge  in  the  practice  they  have  adopted.  Discuss  this  proposition, 
ting  reasons  for  your  conclusions. 


ioo      ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

10.  Explain  the  various  measures  which  you  would  adopt  to 
verify  whether  or  not  all  cash  received  had  been  duly  accounted  for 
on  the  books  of  the  concern  you  were  auditing. 


CHICAGO,  ILL.,  DECEMBER  3,  1907. 

(Time,  3  Hours.) 

i.  In  the  examination  of  the  accounts  of  a  brewery,  how  would 
you  determine  whether  the  amount  of  beer  produced  and  disposed 
of  during  the  year  was  in  proper  relation  to  the  conditions  disclosed 
by  final  inventories? 

/2,.  An  interurban  railway  company,  wishing  to  provide  against 
possible  accidents,  adopted  the  plan  of  depositing  2  per  cent  of  their 
gross  receipts  each  month  in  a  local  savings  bank  as  a  reserve  for 
that  purpose,  charging  the  funds  so  set  aside  to  an  account  which 
they  designated  "Reserve  for  Accidents."  The  total  fund  for  the 
year  amounted  to  $4,869.26,  out  of  which  they  paid  $950  for  acci- 
dents occurring  and  settled  during  the  twelve  months,  debiting 
such  payment  to  Accident  Account,  and  leaving  a  cash  balance  in 
the  bank  on  December  31,  of  $3,919.26. 

The  book-keeper  endeavored  to  close  the  books  by  showing 
the  $4,869.25  as  a  charge  against  operating  for  the  year  arising 
out  of  accident  liability,  carrying  over  the  balance  in  bank 
($3,919.26)  to  provide  for  future  accidents,  and  making  a  corre- 
sponding credit  to  the  "Reserve  for  Accidents"  account.  This  left 
the  company  with  cash  assets  of  $3,919.26  not  represented  on  the 
books. 

Wherein  did  the  book-keeper  err  and  what  entries  should  have 
been  made  to  show  the  transaction  correctly? 

3.  In  making  an  audit  of  a  large  bank  where  many  of  the 
bills  discounted  are  in  the  form  of  demand  notes  upon  which  par- 
tial payments  of  principal  and  interest  are  permitted  to  be  made,  and 
where  in  many  instances  the  customer,  as  he  hands  in  his  check, 
does  not  wait  to  see  an  endorsement  of  the  payment  actually  made 
at  the  time  by  the  bank  employee,  how  would  you  assure  yourself 
that  one  of  the  entries  covering  such  partial  payments  were  held 
over  until  the  next  day,  while  the  check  or  currency  might  be 
slipped  into  the  Teller's  cash? 


AUDITING,  '  :oi 


4.  In  the  construction  of  a  large  building  the  proprietors  issue 
$800,000  2O-year  6  per  cent,   bonds   which  are  disposed  of  to  the 
contractors  at  85  per  cent,   of  their  face  value.     You  find,   upon 
examination,  that  the  discount  of   15  per  cent,  has  been  charged 
to  Construction  Account  in  the  first  place,  and  then  into  Building 
Account. 

State  whether  you  consider  the  final  entry  legitimate  or  not, 
and  give  reasons. 

5.  In  the  examination  of  the  accounts  of  an  important  rail- 
road, it  appears  that  none  of  the  invoices  and  material  purchased 
appear  on  the  company's  books  until  they  have  been  approved  by 
the  Purchasing  Agent  and  Division  Superintendents,  although  the 
various  store-keepers'  reports  show  that  much  of  the  material  and 
supplies  has  actually  been  received. 

How  would  you  deal  with  such  a  condition  and  determine  the 
real  position  of  the  railroad  with  respect  to  purchases  not  taken 
up  on  the  voucher  register? 

6.  In  examining  the  affairs   of  a  private  country  bank,  it  is 
ascertained  that  no  record  of  certificates  of  deposit  has  been  kept 
except  in  the  general  ledger.     It  also  appears  that  partial  payments 
have  been  occasionally  made  on  certain  certificates  which  are  still 
in  the  hands  of  the  depositor. 

How  would  you  proceed  to  determine  the  liability  of  the  bank 
with  respect  to  certificates  of  deposit  outstanding? 

7.  Assuming  that  all  cash  discounts  on  purchases  made  during 
the  year   have  been   taken   advantage   of,   and   the   ledger   account 
shows  a  substantial  credit,  to  what  account  would  you   close  the 
balance?     In  the  case  of  a  jobbing  concern?     Of  a  manufacturer? 

8.  In  the  case  of  a  street  railway  which  allows  its  conductors 
to  sell  tickets  covering  transportation  for  ten  and  twenty-five  rides 
at  a  lower  rate  than  it  demands   for  cash  fares,  how  would  you 
apportion  the  revenue  so  received,  bearing  in  mind  that  at  the  end 
of  each  month  many  tickets   remain  unredeemed. 

9.  In    a    large    country    store    containing   several    departments 
considerable  produce  is  taken  in  the  grocery  section   from   farm- 
ers   and   others,    for   which   trading  orders   are   issued   redeemable 
in  merchandise  only  through  the  other  departments.     How  would 
you  determine  the  profit  or  loss  in  each  department? 

10.  A    trading   and    mining    company   maintains    five   general 
stores  at  each  of  five  separate  stations,  and  concentrates  its  sup- 


i&r..  ILUXQIS  LAMINATIONS  IN  ACCOUNTANCY 

plies  each  year  at  Station  A,  which  is  the  only  one  accessible  by 
railway,  and  distribution  is  made  from  thence  by  means  of  wagon 
and  pack  trains.  The  cost  of  goods  laid  down  at  Station  A  is  10 
per  cent,  above  invoice  prices  at  the  company's  general  office  in 
Montana;  and  the  agent  at  Station  A  is  instructed  to  re-bill  all 
shipments  to  Station  B  at  20  per  cent,  above  original  invoice 
cost;  to  Station  C  at  35  per  cent;  to  Station  D  at  40  per  cent.,  and 
to  Station  E  at  50  per  cent.,  the  experience  of  several  years  bearing 
out  the  General  Manager's  statement  that  such  additions  are  approx- 
imately correct  and  cover  actual  cost  of  transportation. 

In  auditing  the  accounts  for  the  purpose  of  certifying  the  an- 
nual balance  sheet,  you  ascertain  that  certain  goods  at  Station  D 
amounting  to  $10,000,  are  inventoried  by  the  Agent  at  that  point 
at  70  per  cent,  above  the  original  invoices  which  you  have  exam- 
ined at  the  home  office.  He  states  that  Station  E,  being  over- 
stocked, shipped  him  several  lots  of  merchandise  at  price  billed  out 
to  E  by  Station  A,  plus  10  per  cent,  for  estimated  cost  of  handling 
and  repacking  at  E ;  and  to  this  D  legitimately  added  10  per  cent, 
for  cost  of  transportation  from  E  back  to  D. 

In  your  visit  to  other  stations  you  find  many  similar  instances 
where  goods  have  been  moved  back  and  forth  and  each  time  the 
shipping  station  has  added  10  per  cent,  for  handling  and  repacking. 

Out  of  a  total  inventory  at  all  stations  of  goods  originally 
costing  $200,000,  the  summary  shows  final  extensions  of  values 
aggregating  $325,000,  of  which  not  more  than  $75,000  is  covered 
by  cost  of  transportation,  leaving  some  $50,000  represented  by  in- 
ternal charges  added  between  the  different  stations. 

Review  the  foregoing  statement  and  give  your  method  of 
handling  such  accounts. 


CHICAGO,  ILL.,  MAY  4,  1908. 

(Time,  3  hours.) 

1.  In  a  case  where  the   preferred  shares  of  a  company  are 
issued    under    a    provision    that    the    annual    dividends    to    which 
they  shall  be   entitled  shall  be   "cumulative",   would  you   consider 
it  necessary  to   show   any    arrears    of   dividend  as   Liability   upon 
the  Balance  Sheet,  or  how  would  you  deal  with  it? 

2.  What  special  points  in  the   Balance   Sheet  of   a   company, 


AUDITING  103 


aside  from  the  correctness  of  the  figures,  require  careful  consider- 
ation by  the  Auditor? 

3.  In  making  an  audit  of  the  accounts  of  a  corporation,  would 
you  consider   it  part  of  your  duty  to   verify  the  transfers  of   the 
certificates  of   Capital   Stock  occurring  during  the  period  covered 
by  your  examination? 

4.  In    financing    a    manufacturing   company,    it    is    considered 
necessary  to  arrange  for  an  issue  of  $300,000  first  mortgage  5  per 
cent.  20-year  bonds,  $500,000  6  per  cent,  non-cumulative  Preferred 
Stock  which  may  be  retired  any  time  after  five  years,  and  $1,000,000 
Common  Stock.    The  bonds  are  disposed  of  at  90  per  cent  of  their 
face  value  and  proceeds  used  for  erecting  buildings  and  purchase 
of  machinery  and  equipment. 

The  Preferred  Stock  is  sold  at  85  and  one  share  of  the  Com- 
mon Stock  is  given  with  each  share  of  Preferred  Stock,  the  Com- 
mon stock  remaining  being  disposed  of  at  40.  How  could  you  deal 
with  the  discount  in  each  case? 

5.  A    company   whose   capital    stock   is   $250,000   divided   into 
$100,000  6  per  cent  non-cumulative   Preferred  shares  and  $150,000 
Common  shares,  begins    its   life  with   an  excess   of   liabilities  over 
real  assets  to  the  extent  of  $10,500,  which  sum  is  debited  to  Sus- 
pense account.     During  the  first  few  years  small  losses  are  made 
and   carried    forward   on    the    Profit   &   Loss   Account,   but    finally 
sufficient  profits  are  earned  to  wipe  out  the  losses  of  the  previous 
years  and  leave  a  balance  of  $16,500. 

The  holders  of  the  Preferred  Stock  claim  that  any  surplus 
profit,  after  payment  of  the  preference  dividend,  should  be  used  to 
extinguish  the  Suspense  Account. 

The  holders  of  the  Common  Stock  claim  that  all  of  such 
surplus  is  properly  available  for  their  dividend  on  the  ground  that 
the  original  deficiency  carried  to  Suspense  Account  was  in  effect  a 
charge  to  good  will. 

Give  briefly  your  understanding  of  "good  will".  State  how 
you  would  deal  with  it  in  this  case,  and  whether  the  Directors  may 
pay  any  dividend  on  the  Common  Stock. 

6.  A   suburban   traction   company,   after   equipping  its   line   at 
a   very   considerable   expense    for   overhead    trolley   and   operating 
same    for    several    years,    decides    to    adopt    the    third-rail    system. 
Extensive    changes    are    necessary    in    changing   power-houses,    re- 
arranging  tracks    and   altering   cars,    involving   an    expenditure   of 


104      ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

$25,000.  In  addition,  considerable  machinery  and  rolling  stock,  the 
original  cost  of  which  had  been  treated  as  a  capital  outlay  and  was 
carried  on  the  books  at  a  valuation  of  $25,000,  is  rendered  obsolete 
and  is  disposed  of  for  $3,500,  showing  a  loss  of  $21,500.  The  profits 
from  operation  for  the  year  are  $18,000. 

State  how  you  would  recommend  that  the  matter  be  dealt  with 
in  the  company's  accounts,  and  whether  the  company  can  pay  a 
dividend  ? 

7.  A  firm  having  several  branches  maintains  an  account  with 
each  branch  in  the  Ledger  and  charges  to  such  account  all  goods 
sent  to   the  agents    for   stock.     When   stock   is   taken  the  balance 
of  each  branch  account  is  treated  as  ordinary  Accounts  Receivable 
and  is  included  in  the  General  Debts  owing  to  the  firm.     If  you 
see  any  objections  to   this  method,   state  them,   and  say  how   you 
would  deal  with  the  accounts. 

8.  Presuming  that  upon  examination  of  a  merchant's  accounts 
the  balance  shown  by  the  bank  pass-book,  or  certified  by  the  bankers, 
agreed  with  the  balance  shown  in  the  merchant's  books,  would  you 
consider  any  further  examination  necessary? 

State  reasons  for  your  reply. 

9.  Define   your    understanding    of    the    principle    involved    in 
determining  what  are  and  what  are  not  expenditures  from  Capital. 

10.  You  are  instructed  to  make  an  audit  by  -a  merchant  selling 
finished   goods,    or   by   a   manufacturer.      State   all   your   responsi- 
bilities.    Name  the  financial  statements  you  should  make  and  give 
a  form  of  certificates. 


CHICAGO,  ILL.,  NOVEMBER  20,  1908. 
(Time,  3  Hours.) 

i.  In  examining  the  partnership  accounts  of  Black  &  Brown 
you  ascertain  that  the  capital  of  $20,000  has  been  provided  equally, 
and  the  articles  of  partnership  provide  that  if  any  excess  capital 
is  supplied  by  either  partner,  interest  at  the  rate  of  5  per  cent 
per  annum  shall  be  allowed.  Black  pays  in  $5,000  additional  and 
is  credited  at  the  end  of  the  year  5  per  cent,  on  same  which 
equals  $250.00,  which  is  debited  to  Brown.  State  whether  you  con- 
sider this  correct  and  give  reasons  for  your  answer. 


AUDITING  105 

2.  In    the   examination   of    a   business   you   find   that   all   past 
due  accounts  receivable  are  promptly  charged  to  a  Suspense  account 
and  the   Suspense   account  is  plainly  stated  on  the  Balance  sheet 
among  the  assets.     Do  you  consider  this  satisfatcory ;  or  what  form 
of   account   would  you   recommend   should  be   set  up  to  care   for 
such  items? 

3.  Outline  method  you  would  adopt  in  auditing  the  accounts 
of  a  municipality  so  as  to  satisfy  yourself  that  all  amounts  paid  in 
on  account  of  taxes  have  been  duly  entered  on  the  books. 

4.  State   how   you  would   deal    with   the   following   items   of 
account  in  making  an  audit  of  an  Illinois  company. 

a.  Premium  paid  for  a  lease. 

b.  Commission  on  an  issue  of  capital  stock. 

c.  Discount  on  an  issue  of  bonds,  proceeds  of  which  are  used 
for  plant  construction. 

d.  Expenses  incidental  to  organization. 

e.  Cost  of  removing  certain  machinery  to  a  different  part  of 
the  works  and  adding  some  new  machinery. 

Give  reasons  for  your  answers  in  each  case. 

5.  After  having  been  employed  as  auditor  of  a  firm  for  several 
years,  the  partners  advise  you  that  they  have  decided  to  conduct 
their  business  as  a  corporation  and  have  secured  a  charter  under 
the   general    laws    of   the   state    accordingly.     In   what   way   would 
your  duties  as  an  auditor  be  affected  by  such  a  change? 

6.  In  large  businesses  internal  auditors,  members  of  the  staff 
of   the   concern,   are    frequently   the   only   ones   employed.     Where 
this  is  the  case,  do  you  think  it  desirable  that  professional  Certified 
Public  Accountants  should  be  engaged?    If  so,  give  your  reasons? 

7.  How  should  the   following  assets  be  valued  for  a  Balance 
Sheet?      Manufactured    Goods,    Debts    due    the    Concern,    Partially 
Manufactured  Goods,  Bills  Receivable? 

8.  Assuming  that  you  have  been  appointed  auditor  to  a  corpora- 
tion or  private  firm  on  its  formation,  and  have  been  asked  to  state 
for  the  guidance  of  the  cashier  and  bookkeeper  the  requirements 
you  would  expect  to  have  been   fulfilled  when  you  come  to  make 
the  audit,  write   out  detailed   instruction   in  the   form   you   would 
actually  give  them. 

9.  What  evidence  would  you  require,  first,  as  to  the  existence 
of  assets  (other  than  book  debts)  shown  in  a  Balance  Sheet;  and, 


io6      ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

secondly,  as  to  the  correctness  of  the  amounts  at  which  they  were 
entered  in  the  books. 

10.  Does  an  Auditor's  duty  in  any  way  extend  beyond  the 
careful  examination  and  certifying  of  the  books  and  accounts  sub- 
mitted to  him.  Discuss  different  theories. 


CHICAGO,  ILL.,  May  3,  1909. 
(Time,  3  Hours.) 

1.  To  what  extent  do  you  consider  it  an  Auditor's  duty  to 
examine  into  and  report  upon  the  stock  inventories  and  the  methods 
by  which  the  stock  has  been  taken  and  valued? 

2.  A  company  shows  among  its  assets  $2,675.00  as  unexpired 
insurance  on  January  I,   1907.     On  February  I,   1907,  the  plant  is 
destroyed  by  fire  and  a  total  loss  of  $57,875.00  occurs,  which  the 
Insurance  Company  pays.    How  would  you  treat  the  $2,675.00  unex- 
pired insurance  item? 

3.  In    auditing   the    accounts    of    a    Manufacturing    Company 
would  you  consider  it  proper  to  allow  the  Profit  and  Loss  account 
to  be  credited  with  profit  on  uncompleted  work? 

4.  State  your  understanding  of  a  "continuous  audit".     What 
are  its  advantages  over  a  yearly  or  half  yearly  audit?     Can  you 
point  out  any  special  dangers  to  which  it  is  exposed? 

5.  You  are  employed  to  audit  the  accounts  of  the  Utility  Mills 
and  find  that  the  machinery  after  having  been  regularly  depreciated 
for  a  number  of  years  has  been  valued  by  an  independent  appraiser 
at  a  sum  considerably  in  excess  of  the  book  value,  and  the  Company 
has  appreciated  the  machinery  item  in  the  balance  sheet  by  such 
increased  value.     How  would  you  suggest  that  the  corresponding 
credit  should  be  dealt  with?    Would  such  an  appreciation  be  avail- 
able for  distribution  in  the  shape  of  a  dividend? 

6.  Give   six  typical  examples  of  Fraud,   of  which  only   four 
involve  the  abstraction  of  actual  money,  and  explain  shortly  what 
means  you  would  suggest  to  reduce  the  risk  of  loss  under  each  of 
these  headings  to  a  minimum. 

7.  Explain  shortly  the  effect  of  a  fall  of  the  Tael  on  each  of 
the  following : 


AUDITING          t  107 

A  Chicago  concern  carrying  on  a  general  trading  business  in 
China ; 

A  Chicago  corporation  owning  a  railroad  in  China. 

A  Chicago-Chinese  Bank. 

Confine  your  answer  to  the  effect  that  the  variation  in  exchange 
should  have  on  the  published  accounts. 

8.  A  corporation  purchased  a  business  as  a  going  concern  on 
January  ist,  1908,  with  a  right  to  the  profits  from  October  ist,  1907. 
its  capital  is: 

5  per  cent.  First  Preferred  Stock $250,000  oo 

6  per  cent.  Second  Preferred  Stock $250,000  oo 

Common  Stock $124,000  oo 

The  year's  profits  to  September  3oth,  1908,  are  found  to  have 
been  $38,320.00.  What  appropriation  of  such  profits  would  you 
consider  to  be  correct? 

9.  A  Cash  Book  exists  with  three  columns  on  each  side,  viz., 
Debit    Side,    Discounts,    Cash   Receipts,    Bank;    Credit    Side,    Dis- 
counts, Cash  Payments,  Bank. 

In  making  an  audit,  you  find  that  the  Cashier  closed  his  Cash 
Book  at  the  end  of  a  month,  bringing  down  a  cash  balance  of 
$177.91;  you  count  his  cash  and  find  that  he  has  only  $119.12.  On 
going  carefully  through  the  month's  transactions,  you  find  that 
$45-37  paid  in  cash  had  been  entered  in  the  Bank  column;  the  total 
of  a  previous  page  of  Cash  Receipts,  $2,516.25,  was  brought  forward 
as  $2,525.75 ;  the  discount  $2.50  on  an  account  paid  had  been  entered 
in  the  Cash  column  as  a  payment  instead  of  in  the  Discount  column ; 
$10.00  received  from  a  partner  for  payment  of  a  private  account 
had  been  included  in  the  Cash  in  Hand,  but  not  entered  in  the 
Cash  Book. 

Rule  a  form  of  Cash  Book  as  above,  enter  the  balance  brought 
down,  and  make  entries  to  correct  the  errors  above  described.  Show 
the  deficiency  still  existing,  and  state  how  it  should  be  dealt  with. 

10.  Reply  to  the  following  letter : 
Dear  Sir: 

We  wish  you  to  audit  our  accounts  for  the  past  ten  years  and 
to  report  thereon.  In  your  report  please  state  what  dividend  may 
in  your  opinion  be  fairly  expected  in  the  future  if  the  business  is 
taken  over  by  a  corporation  with  a  paid  up  capital  of  $500,000.00. 
The  capital  of  the  partners  during  the  period  named  has  been 


io8      ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

$375,000.00,  and  the  profits  divided  have  averaged  over  15  per  cent., 
as  shown  by  the  accounts  you  are  asked  to  verify. 

Yours  very  truly, 

SMITH  &  BROWN. 


CHICAGO,  ILL.,  May  2,  1910. 

(Time,  3  hours.) 

1.  Define  the  different  responsibilities  of  an  auditor  of  the  ac- 
counts of  (a)   an  individual;   (b)  a  firm;   (c)  a  corporation. 

2.  An  attorney-at-law  joint  an  established  firm  in  partnership 
without  having  the  books  investigated,  relying  on  the  firm's  statement 
that  they  are  making  a  certain  profit.     After  several  months  have 
elapsed,  the  new  partner,  not  being  satisfied,  instructs  you  to  audit 
the  accounts  for  the  year  immediately  prior  to  his  joining  the  firm. 
You  discover  that  no  break  has  been  made  in  the  books  for  years; 
what  steps  would  you  take  to  ascertain  the  exact  profit  for  the  year? 

3.  In  the  case  of  a  corporation  the  management  suggests  the 
diminution  or  suppression  of  depreciation  on  plant  and  machinery 
on  these  grounds : — 

(a)  Nothing  need  be  written  off  as  the  plant  is  actually  more 
valuable,  owing  to  a  rise  in  the  cost  of  similar  machinery. 

(b)  Repairs  have  been  fully  maintained,  and  the  plant  is  as 
good  as  ever. 

(c)  To  charge  depreciation  to  the  same  extent  as  in  a  good 
year  will  prevent  a  dividend,  with  consequent  outcry  by  stockholders, 
and  fall  in  the  price  of  shares. 

Combat  these  arguments. 

4.  A  corporation   formed  to  invest  in   certain  classes  of  se- 
curities has  made  a  serious  loss  on  paper,  by  a  fall  in  the  price  of 
some  of  its  purchases,  while  it  has  earned  enough  on  income  to  pay 
the  usual  dividend. 

How  should  this  be  dealt  with  in  the  annual  accounts? 

5.  A   fraudulent   cashier  has   embezzled   some   of  the   money 
passing  through  his  hands.    The  books  are  kept  on  a  double  entry 
system,  and  he  has  access  not  only  to  the  cash  book,  but  also  to  the 
Journal  and  Ledger. 

Point   out   eight   distinct   methods   by    which    he   may   try   to 
conceal  his  theft 


AUDITING  109 

6.  The  Directors  of  a  certain  Company  desire  you  to  make 
a  thorough  audit  of  the  accounts  and  state  in  your  certificate  "that 
the    books    are    correct    and    all    transactions    have    been    properly 
recorded."     Draft  the  form  of  certificate  you  would  give. 

7.  State  the  items  of  income  or  expenditure  which  you  would 
add  to  or  take  from  the  profits  of  a  firm  (as  shown  by  the  books) 
in  preparing  a  certificate  to  be  used  in  the  prospectus  of  a  Com- 
pany which  has  been  formed  to  take  over  the  business. 

8.  A  company  organized  June  3oth,  1909,  purchased  the  plant 
and  business  of  a  private  firm  as  of  January  I,  1909,  i.  e.,  the  Com- 
pany is  to  have  the  entire  profit  which  may  have  been  made  from 
January    i    to   June   30th.      How   would   you   apportion   the   year's 
profits  in  making  up  the  accounts  on  December  31,  1909? 

9.  A  newly  organized  Company  permits  its  shareholders  to  pay 
in  advance  of  certain  calls  made  against  their  subscriptions,  and  al- 
lows them  interest  on  such  advances.     How  should  interest  so  paid 
be  treated  in  the  accounts,  or  is  it  dependent  upon  subsequent  profit? 

10.  Outline  the  method  you  would  adopt  in  auditing  the  ac- 
counts of  an  Executor   for  the  first  year  after  the  death   of  the 
testator. 


CHICAGO,  ILL.,  DECEMBER  21,  1910. 
(Time,  3  hours.) 

1.  During  the  Audit  you  are  making  of  the  Accounts  of  a  Cor- 
poration, you  become  aware  of  a  claim  against  the  Company  which 
you  think  is  likely  to  be  enforced,  but  which  the  Directors  do  not 
recognize,  and  for  which  they  will  make  no  reserve.     What  would 
you  do  in  the  circumstances? 

2.  State  shortly  the  duties  of  an  Auditor  of  a  Corporation. 

3.  A  corporation  is  established  for  working  a  Patent  of  which 
ten  years  are  expired,  and  for  which  a  sum  of  money  has  been 
paid.     How  should  the  Company  deal  with  this  Asset,  and  what  is 
the  duty  of  the  Auditor  in  respect  of  it? 

4.  How   should   an   incorporated   coal   Company  estimate  the 
value  of  its  Colliery  in  its  Balance  Sheet  from  time  to  time,  first 
as  a  Freehold,  secondly  as  a  Leasehold? 


no      ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

5.  Write  out  a  short  Audit  Certificate  dealing  with  a  few  of 
the  points  which  sometimes  arise  in  an  Audit,  and  have  to  be  specially 
dealt  with  by  the  Auditor  in  his  Certificate. 

6.  In  the  case  of  an  incorporated  company  making  considerably 
more  profit  than  usual  in  one  year,  owing  to  extensive  purchases 
on  a  rising  market,  would  you  advise  declaring  a  proportionately 
larger  dividend,  or  what  would  be  your  recommendation?     State 
your  reasons. 

7.  In  auditing  the  books  of  an  importing  and  domestic  whole- 
sale wine  and  liquor  dealer  how  would  you  assure  yourself  of  the 
correctness  of  the  inventory  as  to  the  bonded  stock? 

8.  Beyond  the  mere  detailed  checking  of  purchase  invoices  to 
the  ledger  accounts  with  dealers,   can  you  suggest  any  steps  that 
might  be  taken  which  might  be  advisable  with  the  view  of  the  pre- 
vention of  fraud? 

9.  A  corporation  invests  its  Reserves  outside  its  business.  On 
the   audit  of  the  accounts   explain  what  steps  you  would  take  to 
verify  the  full  receipt  of  the  investment  income  and  the  safe  custody 
of  the  trust  funds? 

10.  Upon  the  audit  of  the  partnership  accounts  of  a  manufac- 
turing business  the  following  conditions  are  revealed : 

1.  Sales  toward  the  end  of  the  period  are  unusually  large. 

2.  A  large  deposit  in  bank  is  made  on  the  closing  fiscal 
date,  which  amount  is  credited  to  the  bank  two  weeks 
later. 

3.  Machinery  sold  has  been  credited  to  merchandise  sales. 

4.  A  loan  to  the  firm  has  been  credited  by  mutual  consent 
to  the  capital  account  of  one  of  the  partners. 

5.  Depreciation  or  discount  from  the  value  of  a  certain 
class  of  the  inventory  instead  of  being  30  per  cent,  as  in 
prior  years  is  shown  as  10  per  cent 

What  would  you  deduce  from  these  facts,  and  what  would  you 
feel  called  upon  to  do  by  way  of  extended  inquiry  or  report  in  each 
of  these  instances? 


AUDITING 


CHICAGO,  ILL.,  May  23,  1911. 
(Time,  3  hours.) 

1.  A  Chicago  Corporation  does   Business  in   Brazil  where  its 
capital  is  invested,  a  Balance  Sheet  and  Profit  and  Loss  Account  in 
Brazilian  currency  being  sent  over  at  the  end  of  each  year  for  amal- 
gamation with  the  Chicago  accounts.     During  the  last  year  assume 
.that  a  heavy  fall  in  exchange  took  place,   say  from  54  cents  per 
milreis  to  36  cents.     At  what  rate  of  exchange  would  you  take  the 
Brazilian  assets  for  the  purpose  of  the  American  Balance   Sheet? 
Would  you  treat  the  Buildings,  Machinery  and  Plant  differently  from 
the  floating  assets?    Explain. 

2.  The  $500.00  six  per  cent,  bonds  of  a  corporation  are  issued 
at  $450.00  redeemable  at  par,  by  ten  annual  drawings.     How  would 
you  treat  these  bonds  in  the  Profit  and  Loss  Account  and  Balance 
Sheet? 

3.  The  following  Profit  and  Loss  Account  is  presented  to  you 
for  audit  by  the  Directors  of  a  Company,  who  intimate  their  will- 
ingness^  to  modify  it  in  accordance  with  your  suggestions.     How 
would  you  re-draw  it  so  as  to  show  the  exact  profit  for  the  period 
under  audit? 


To  Rent    $     1,67200 

Inventory    . .     15,325  oo 
Bad   Debts..       1,24200 
"     Interim 

Dividend.       5,000  oo 
Depreciation         650  oo 
Purchases   . .     66,728  oo 
"    Directors' 

Fees    2,000  oo 

"     Proposed 

Dividend  .      4,000  oo 

Salaries  2,463  oo 

"    General 
Expense 


By  Interest  on  Invest- 
ments   $  4,660  oo 

"    Inventory   17,806  oo 

"    Sales    83,236  oo 

"     Balance  from  last  year  2,627  oo 

"    Sundries   12  oo 

"     Reserve  Fund  trans- 
ferred      2,000  oo 


Wages 
Balance 


3,791  oo 
7,402  oo 
68  oo 


$110,341  oo 


$110,341  oo 


ii2       ILLINOIS   EXAMINATIONS   IN  ACCOUNTANCY 

4.  In  auditing  the  accounts   of  a  bank,  what  evidence  would 
you  require  produced  in  respect  of  the  following  assets :     Loans, 
Bills   discounted,   Government   Bonds;     State   also   to  what   points 
you  would  direct  your  attention  in  the  examination  of  each  class 
of  security. 

5.  What,   in  your  opinion,   is  the  best  method  of   stating  the 
Profit  and  Loss  Account  of  a  trading  corporation  so  that  it  shall 
give  the  greatest  possible  desirable  information  to  the  Stockholders. 

6.  A  corporation  took  an  inventory  of  its  stock  on  December 
31,   1910,  at  which  time  it  was  overdrawn  at  its  bank  about  $25,- 
ooo.oo.     It  kept  its  cash  book  open   (as  of  December  31)    for  the 
greater   part   of   January,    during  which   time   there   was   collected 
from   Customers  over  $240,000.00  and  $176,000.00  of  this  was  ap- 
plied to  payment  of  liabilities  accruing  in  January. 

State  the  effect  of  these  January  transactions  upon  the  finan- 
cial showing  and  your  attitude  as  auditor  in  certifying  to  the 
statement.  :.  .; 

7.  During  the  past  fiscal  year  a  concern  under  audit  has  not 
shown  profit  sufficient  to  justify  paying  a  dividend.     The  manager 
in  order  to  avoid  showing  a  loss  disregards  the  usual  depreciation 
reserve  charges   for  structures,  plant,  machinery,  tools  and  imple- 
ments. 

What  would  be  your  view  as  auditor  under  the  circumstances? 
Give  reasons  as  a  feature  of  your  report. 

8.  In  reviewing  the  schedules  of  open  customers'  accounts  re- 
ceivable for  the  purpose  of  setting  up  a  reserve  against  irrecover- 
able amounts  how  would  you  proceed?     Lay  out  your  method  and 
state  what  conditions   would  prompt  inquiry   as   to   a  possible   de- 
fault in  any  one  item. 

How  should  a  reserve  for  cash  discounts  on  outstanding  ac- 
counts receivable  be  computed? 

9.  In  an  audit  if 

(a)  Cash  is  received  but  not  properly  accounted  for — 

(b)  Cash  is  paid  for  goods  that  were  never  delivered — 

(c)  Cash  is  paid  for  wages  that  were  not  earned — 

All  with  fraudulent  intent,  state  concisely  what  means  you 
would  devise  to  prevent  such  happening  in  the  future? 


AUDITING      .  113 

10.     What  is  the  Auditor's  duty  as  to  the  inventory  of  a  man- 
ufacturer's stock  on  hand — 

1.  As  to  the  prices  of  raw  material. 

2.  As  to  quantities  of  all  items. 

3.  As  to  the  extensions,  additions  and  summaries. 

4.  As  to  the  conditions  of  schedules  and  summations  compar- 
atively with  those  of  the  opening  of  the  term. 

5.  As   to   obsolete,   spoilt,   uncatalogued   or   pattern    goods. 

6.  As  to  its  effect,  in  ratio,  as  a  total  on  the  gross  profit. 


CHICAGO,  ILL.,  May  29,  1912 
(Time,  3  hours.) 
Answer  ALL  of  the  following  EIGHT  Questions: 

1.  Distinguish  between  a  "Continuous"  and  "Completed"  audit, 
and  state  what  you  understand  by —   (i)    A   Cash  Audit;    (2)    A 
Financial  or  Balance  Sheet  Audit;  and   (3)   A  General  Audit. 

(5   Credits). 

2.  What  general  procedure  would  you  follow  in  auditing  the 
Receipts,    or   debit   side    of   the    Cash    Book,    of    a    Manufacturing 
Company  where  the  transactions  were  not  too  numerous  to  render 
a  complete  detailed  audit  impracticable,  and  state  what  features  of 
the  audit  would  you  omit  where  the  transactions  were  too  numerous 
to  permit  of  a  complete  detailed  audit. 

(10   Credits). 

3.  (a)    Do  you  consider  it  important   to  vouch  or  otherwise 
examine    expenditures    added    to    Plant,    Property    and    Equipment 
Accounts ;  and  if  you  do,  state  what  your  object  would  be,  and  the 
character  of  the  examination  you  would  make. 

(b)   State  the  points  to  be  attended  to  in  the  audit  of  the  In- 
ventories of  a  Manufacturing  Corporation. 

Credits). 


H4      ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

4.  In   the   Balance   Sheet   of   a   concern   under   audit  you   find 
the  Accounts  Receivable  and  Payable  to  be   as   follows : 

Accounts  Receivable — 

Chicago   (Head  Office)    Debtors $95,650  oo 

St.  Louis  Branch  account 2,425  oo 

Atlanta  Branch  account 4,730  oo 

New  Orleans  Branch  account   1,725  oo 

Accounts  Payable — 

Chicago    (Head    Office)    Creditors    $41,50000 

New  York  Branch  account. 7,200  oo 

Montreal   Branch  account 3,752  oo 

What  adjustments  in  the  Balance  Sheet,  if  any,  would  be  neces- 
sary in  order  that  an  unqualified  certificate  might  be  given? 

(7#  Credits). 

5.  Criticize  the  following  Balance  Sheet  from  both  the  Audit- 
or's standpoint  and  that  of  the  Company's  Financial  Position;   as- 
suming that  the  Bonded  Indebtedness  outstanding  is  $200,000.00. 

A.    B.    COMPANY— BALANCE    SHEET— DECEMBER    31,    1911. 

Assets. 

Real  Estate,  Buildings,  Plant,  Machinery,  Equipment  and 

other    permanent    Investments,    including    Goodwill.  ...$  1,000,000 

Investments  in  Stocks  and  Bonds  at  Cost  (Market  Value 

$60,000)     100,000 

Current  Assets: 
Inventories — 

Raw  Materials    , $  170,000 

Finished  Stock  at  Selling  Prices,  less  Discount 

5    per    cent    100,000 

Consignment    (Selling   Value).. 50,000 

Supplies    (Estimated)    200,000 


$  520,000 

Accounts   and  Bills  Receivable,  including  Ad- 
vances to  Employes 125,000 


115 


AUDITING 

Stock  in  Treasury    (Unissued) — 

Preferred    $  150,000 

Common    137,225 

$287,225 

Investments  in  Subsidiary  Companies   225,500 

Cash  and  Miscellaneous  Items 50,500 

$  1,208,225 

$  2,308,225 

Liabilities. 

Capital  Stock: 

Preferred  Stock   $     500,000 

Common  Stock  750,000 

Bonds  and  Bankers'  Loans  575,ooo 

Current  Liabilities : 

Accounts  Payable $    15,225 

Other  Indebtedness   231,000 

Accrued  Items    2,000 

248,225 

Reserves : 

For  Depreciation    $    50,000 

Less — Renewal  Expenditures  written  off..      65,000 

Balance    (Debit)    $    15,000 

For  Bad  Debts    20,000 

Other  Contingencies   5,ooo 

10,000 

Surplus    (less   Dividends    Paid)    including  ap- 
preciation in  Real  Estate  and   other  Capital 
Assets    and     Profit     on    Inventorying     Raw 
Materials   at   Market   Prices 225,000 


$  2,308,225 


(17%  Credits). 


ii6      ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

6.     You  find   in  the   course  of   an   annual   examination   as  of 
December  31,  the  following: 

(1)  A  credit  balance  in  the  Cash  Account  of $625  oo 

(2)  In  the  Credit  Ledger  a  debit  balance  for  Cash  charged 

to  Davis  &  Co.,  on  July  31  for 375  oo 

(3)  In  the  Debit  Ledger  a  credit  balance  for  Cash  paid  by 
Jones  &  Co.  on  December  31 250  oo 

(4)  A  debit  balance  also  in  the  Debit  Ledger  to  Winslow  &  Co.: 

July  i,  Mdse $    50  oo  Aug.  20,  cash  &  disc'nt$    50  oo 

Aug.  3,  Mdse 6000  Oct.  3       "             "             7500 

Sept.  15,  Mdse 75  oo  Dec.  i       "             "            100  oo 

Oct.  10,  Mdse loo  oo  Dec.  31,  Balance 6000 


$  285  oo  $285  oo 

December  31,  Balance  $60.00. 

What  would  be  your  views  of  each  of  these  items? 
(7T/2   Credits). 

7.  In  auditing  the  accounts  of  a  Corporation,  you  find  that 
the  Company  has  utilized  its  own  Materials  and  Labor  in  the  con- 
struction   of    extensive    additions    to    its    Plant,    and    that    it    has 
charged  up   such  work   at   regular  trade  prices   sufficient  to  yield 
to  it  a  substantial   Profit,  which  has  been  credited  to   Profit  and 
Loss  Account.     Do  you  see  any  objection  to  this  course?     Explain 
fully  the  theory  upon  which  your  answer  is  based. 

(10  Credits). 

8.  A  Company  insures  the  life  of  its  Manager  for  its  own 
benefit  in  the  sum  of  $50,000.00,  the  annual  premium  being  $1,250.00. 
Explain  the  method  you  would  adopt  of  treating  the  disbursement  at 
the  annual  accounting  during  the  period  the  policy  was  in  force. 

(10  Credits). 

Answer  any  TWO  of  the  following  FIVE  QUESTIONS: 

9.  (a)      In  auditing  the  Disbursements   of  a  Company,  what 
books   and   documents   would   you   call   for ;   what  would  be  your 
exact   procedure,    and    to    what    points    would    you   pay   particular 
attention? 

(b)     Under  what  conditions  would  endorsed  checks  be  regarded 
as  ADEQUATE  VOUCHERS? 

(10  Credits). 


AUDITING  117 

10.  How    far   is    an    Auditor   entitled   to   probe   into   matters 
syond  the   term  which   he   is   instructed   to   audit,   and   for  what 

purpose  should  he  do  so? 

(10   Credits). 

11.  In   auditing   the   accounts   of   the    following,    what   docu- 
ments and  records  would  you  expect  to  see  other  than  the  regular 
double  entry  set  of  books? 

(1)  The  Trust  Estate  of  a  deceased  person? 

(2)  A  Private  Partnership. 

(3)  A  new  Company  which  had  not  been  previously  audited. 

(4)  A  Charitable  Institution. 

(10  Credits). 

12.  In   the  course  of  audit  of  an  Investment  and  Brokerage 
Corporation    you    find    that    the    Diretcors    have    written    up    the 
value  of  some  of  the  securities,  which  they  contend  is  in  harmony 
with  current  market  values.     The  accounts  show  that  the  dividend 
proposed  to  be  paid  has  not  been  earned  unless  the  increment  in 
value  referred  to  is  included  as  a  Profit.    What  is  your  view  of  the 
proposed  procedure  of   the   Directors?     If  you  concur  with  their 
proposed  action,  state  your  reasons ;  and  if  not,  state  the  procedure, 
as  Auditor,  you  would  follow. 

(10   Credits). 

13.  (a)     In  the  accounts  of  a  Wholesale  Dry  Goods  Company, 
under  what,  if  any,   circumstances  is   it  permissible  to  carry  for- 
ward to  a  subsequent  period  the  whole  or  any  portion  of  the  Ex- 
penditures for  Salesmen's  Salaries  or  Commissions  and  Traveling 
Expenses. 

(b)  In  the  accounts  of  a  Lumber  Company  owning  large 
tracts  of  standing  Timber,  how  should  the  book  value  of  "Stumpage" 
be  disposed  of?  What  do  you  understand  by  "Stumpage"? 

(10  Credits). 


THEORY  OF  ACCOUNTS 

CHICAGO,  NOVEMBER  2ND  AND  30,   1903. 
(Time  3  Hours.) 

1.  Explain  fully  the  method  of  transferring  the  accounts  of  a 
business  kept  under  single  entry  to  the  double  entry  form. 

2.  State  in  the  form  of  Journal  entries  the  following  trans- 
actions : 

(a)  Installment  notes  given  on  purchase  of   real  estate,  the 
face   of   said   notes   including  interest   charges   up   to   maturity  of 
the  notes. 

(b)  Loss  by  fire  of  buildings,  fixtures  and  merchandise;  loss 
sustained  by  owner  over  and  above  the  insurance  carried  and  the 
amounts  due  and  collected  from  the  Insurance  companies. 

(c)  Increase  in  valuation  of  real  estate. 

(d)  Note  of  a  customer  returned  with  a  protest  charges  from 
the  bank  where  it  had  been  left  for  collection. 

3.  Describe  what  is  known  as  the  Voucher  System.     Can  a 
Voucher  System  be  used  to  advantage  in  every  business?     If  not, 

state  certain  conditions  which  would  militate  against  it. 

4.  Define  briefly  the  following^ term :     (a)   Capital,     (b)   Cap- 
ital Stock,     (c)    Dividend  Scrip,      (d)    Loan  Capital,     (e)    Capital 
Expenditure,      (f)    Cash  Assets,     (g)    Surplus,      (h)    Income  Ac- 
count. 

Explain  why  Capital  account  represents  a  liability. 

5.  Are  there  any  circumstances  where  a  manufactory  might 
inventory  finished  goods  at  selling  price  instead  of  at  cost? 

6.  Trace   the   various   operations   in   a   well    regulated   office 
from  the  time  an  order  is  given  for  the  purchase  of  material  until 
such  material  is  paid  for,  to  protect  the  company  from  any  possi- 
ble loss  in  the  transaction. 

7.  A    corporation    engaged    in    the    manufacture    of    boilers 
owns    the    plant,     upon     which,     however,     there    is    a    mortgage 
amounting  approximately  to  one-half  of  the  value   of   the  build- 

118 


ings 


THEORY  OF  ACCOUNTS  119 


ings  and  real  estate.  On  a  part  of  the  real  estate  owned  the 
corporation  has  erected  cottages,  which  it  rents  to  certain  of  its 
employes.  It  is  the  custom  to  pay  the  employes  each  week,  the 
pay  day  being  on  each  Wednesday  for  the  week  ending  the  previous 
Saturday. 

The    corporation    is    in    the    habit    of   borrowing   on    its    three 

I  months'  notes  from  the  local  banks,  whilst  it  purchases  its  material 
on  credit,  giving  credit  also  in  turn  to  its  customers. 
Draw  up  a  form  of  Balance  Sheet  suitable  to  the  above  con- 
ditions. 
8.      A    manufacturer    obtains    two    patents    at    the    same    time 
as  follows: 
(a)  He  purchases  outright  a  patent  which  has  only  ten  more 
years  to  run   for  the  sum  of  $5,000.00  which  he  terms  his  patent 
No.  i. 
(b)    He  invents  a  contrivance  and  obtains  a  patent  on  same, 
the  cost  of  which  he  estimates   at  $12,000.00  and  which  he  styles 
his  patent  No.  2. 

At  the  end  of  three  years  he  expends  the  sum  of  $5,000.00  in 
defending  his  patent  No.  2,  the  decision  being  given  in  his  favor. 
One  year  later  he  spends  $2,000.00  in  a  suit  he  brings  against  a 
competitor  for  infringement  of  his  patent  No.  I,  which  suit  he 
also  wins. 

Without  giving  the  actual  figures,  state  how  you  would  treat 
all  the  above  transactions  and  arrive  at  a  valuation  of  those  two 
patents  six  years  after  he  had  oBlained  same,  giving  reasons  there- 
"  for. 

g.  A  merchant  who  has  been  in  business  for  twenty  years 
decides  to  put  a  valuation  on  the  good  will  of  his  business  and 
carry  same  as  an  asset  on  his  ledger,  the  entry  being  to  charge 
good  will  and  credit  surplus.  Another  merchant  five  years 
later  buys  the  entire  business  including  the  good  will,  and  after 
making  a  careful  inventory  finds  that  the  actual  net  resources,  ex- 
clusive of  good  will,  amount  to  $5,000.00  less  than  the  sum  he 
paid  for  it. 

Discuss  the  subject  of  good  will  in  respect  to  the  above  cases, 
and  state  the  correct  manner  of  dealing  with  same. 

10.  Draw  up  a  form  of  Cash  Book  for  a  corporation  where  a 
complete  Voucher  System  is  in  operation  and  where  the  following 
conditions  exist:  Two  Country  and  Two  City  ledgers  are  kept, 
also  an  operating  ledger  and  a  private  ledger.  It  is  a  practice  of  a 


120      ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

majority  of  the  customers  to  take  advantage  of  the  discounts  given 
for  cash  in  thirty  days.  It  is  also  the  custom  of  the  corporation  to 
deduct  the  discount  they  intend  to  take  advantage  of  on  goods 
purchased  by  them,  by  means  of  a  column  in  their  voucher  journal. 
Their  business  is  such  that  20%  of  their  sales  are  made  for  cash 
and  10%  on  C.  O.  Ds.  The  chief  expenditures  of  the  corporation 
arc  for  woolen  fabrics,  notions,  fuel,  light  and  labor. 


CHICAGO,  MAY  4,  1904. 
(Time  3  Hours.) 

1.  Describe  the  various  uses  to  which  a  "Statement  of  Affairs" 
may  be  put.     How  does  it  differ  from  a  Balance  Sheet? 

Define  briefly  the  following  terms  and  show  how  they  should  be 
treated  in  the  preparation  of  a  Statement  of  Affairs. 

Unsecured  Liabilities,  Partially  Secured  Liabilities,  Secured 
Liabilities,  Contingent  Liabilities,  Preferential  Libalilities. 

2.  Describe    briefly   the   books   of    account   and   the   principal 
impersonal  accounts  peculiar  to  any  two  of  the  following  businesses : 

i.  Insurance  Agent.  2.  Brewery.  3.  Building  Loan  Assn. 
4.  Club. 

3.  Explain  the  manner  of  arriving  at  the  cost  of  a  mechanism 
the  parts  of  which  are  made  in  various  departments  and  brought 
together  in  an  assembling  room,  and  also  disucss  the  various  head- 
ings of  costs  that  you  would  expect  to  deal  with  and  manner  of 
arriving  at  same. 

4.  Explain  a  system  of  accounts  which  will  enable  a  thorough 
check  to  be  made  of  all  currency  disbursements.     In  large  estab- 
lishments, where  the  outlay  on  postage  is  considerable,  what  system 
would  you  advise  to  prevent  loss  by  theft? 

5.  Define  briefly  the  following  terms :     Sinking  Fund,  Contin- 
gent Fund,  Reserve   Fund,   Redemption  Fund,  Depreciation   Fund, 
Investment  Fund.     Which  of  these  represent  assets  and  which  lia- 
bilities? 

6.  Discuss  the  different  methods  of  dealing  with,  first,  Repairs 
and,  second,  Replacements  in  connection  with   (a)   A  concern  that 
writes  off  annually  sufficient  depreciation  to  cover  the  life  of  the 
machinery,  and  (b)  A  concern  where  no  depreciation  is  written  off, 


THEORY  OF  ACCOUNTS  121 

and  where   it  is   claimed  the  machinery  is  kept  as  good   as  new. 
Can  you  name  some  other  reason  why  depreciation  should  be 
considered  in   respect  to  machinery  other  than  that  of   wear  and 
tear? 

7.  Name  some  reason  why  it  is  important  to  keep  distinct  the 
various  items  of  cost  in  the  construction  of  a  building  containing 
boilers,  engines,  shafting,  and  heating  plant.    In  the  erection  of  the 
building  itself,   why   should    the   cost   of   the   foundations   be  kept 
distinct   from  that  of  the  balance  of  the  building? 

8.  A  concern  owning  a  fleet  of  twenty  vessels  decides  to  carry 
its     own    insurance.     How  will  this  be  dealt  with  on  the  books, 
and  what  entries  would  you  make  at  the  close  of  each  fiscal  year. 

9.  A  buys  a  tract  of  land  and  sells  a  one-third  interest  in  it 
to  B,  who  agrees  to  pay  for  such  interest  in  ten  monthly  installments 
at  6  per  cent  interest.     The  object  of  this  investment  is  to  make 
certain  improvements  on  the  land  and  to  sell  it  on  land  contracts 
to  various  other  parties,  whom  we  will  denominate  as  C,  D  and  E. 
A  and  B  are  to  share  in  the  proportions  of  2  to  i  in  the  cost  of 
all  improvements  and  expenses,  taxes,  and  also  in  all  moneys  received 
on  sales.     The  book-keeping  of  all  transactions  is  to  be  carried  on 
the  books  of  account  kept  by  A.     Outline  journal  entries  for  the 
following  transactions : 

(1)  Original  investment  made  by  A. 

(2)  Sale  of  one-third  interest  to  B. 

(3)  Sales  of  land  to  C,  D  and  E. 

(4)  Payment  of  taxes  on  land  owned  by  A  and  B. 

(5)  Payment  of  installment  by  B  to  A. 

(6)  Payment  of  installments  by  C,  D  and  E  to  A. 

(7)  Adjustment   of   final   profit   made   on   investment  be- 

tween A   and  B. 

10.  Describe  and  illustrate  the  rulings  of  at  least  three  forms 
of  ledgers  adapted  to  customers'  accounts  and  state  the  form  you 
prefer  for  certain  specific  classes  of  accounts. 


CHICAGO,  NOVEMBER  16,  1904. 

(Time  3  Hours.) 

i.     A  company    (incorporated)    purchases   the  patent  right  of 
a  new  rotary  grate  and  proceeds  to  place  the  same  on  the  market,  by 


122      ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

putting  in  the  field  some  first  class  salesmen.  Not  only  is  it  their 
intention  to  erect  this  device,  but  they  purchase  a  plant  consisting  of 
foundry,  machine  shop,  blacksmith  shop,  carpenter  shop  and  assembly 
room,  so  that  they  will  be  in  a  position  to  manufacture  all  the 
parts.  As  they  intend  to  sell  only  six  sizes,  they  will  be  able  to 
manufacture  for  stock,  the  parts  thus  put  into  stock  being  taken 
out  on  requisition  for  the  purpose  of  filling  contracts,  or  to  replace 
old  parts.  Their  terms  will  be  one-half  cash  on  delivery  of  all 
parts  of  the  mechanism  at  the  plant  and  the  balance  to  be  paid  in 
one  month  after  operation.  Their  agreement  with  their  salesmen 
is  based  on  a  fixed  salary,  together  with  a  commission  of  five  per 
cent  on  the  cash  collected  on  contracts  secured. 

State  what  books  of  account  they  should  keep  and  form  of  same ; 
also  describe  all  the  General  Ledger  Accounts  which  you  would 
deem  it  necessary  that  they  should  open  and  your  reasons  therefor, 
and  draw  up  intelligent  and  comprehensive  form  of  monthly  state- 
ment to  be  rendered  to  the  directors  of  the  company. 

2.  What  books  do  you  recommend  should  be  kept  by  executors, 
and  what  accounts  should  usually  be  opened  in  the  Estate  Ledger. 
Open    accounts    in    an    Estate    Ledger    with    imaginary    figures,    as 
showing  the  condition  of  an   estate  where  the  testator  had  three 
kinds  of  investment. 

3.  Discuss  the  underlying  principles  which  create  a  distinction 
between  a  statement  of  "Receipts  and  Disbursements"  and  "Reve- 
nue  and   Expenses,"  and  which  do  you  recommend   for  that   pur- 
pose?    State  your  reasons  therefor. 

4.  Describe  the  correct  manner  of  writing  up,  and  keeping  the 
following   books : — Stock    Certificate    Book,    Stockholder's    Journal, 
Transfer  Record,  Stockholder's  Ledger.     Sketch  a  simple  form  of 
each  of  the  above  books. 

5.  A  Company  engaged  in  the  manufacture  and  sale  of  pro- 
ducts, desire  a  separation  of  their  expenses  under  proper  divisional 
or  department  heads.    Illustrating,  make  your  own  selection  of  some 
manufacturing    business,    and    prepare    classification    of    accounts. 
What  ledger  headings  would  you  use? 

6.  A    Company   engaged   in   the   manufacturing   business   has 
instructed  its  accountant: 

To   show   depreciation   as   an   operating  expense,   and   a  credit 
to  plant. 


r  THEORY  OF  ACCOUNTS  123 

To  set  up  a  depreciation  reserve,  and  create  a  depreciation  cash 
fund. 
Prepare  the  necessary  journal  entries  to  illustrate  the  idea  of 
Company,  and  discuss  the  question. 

7.  Prepare  form  of  book  for  small  business  combining  general 
ledger,  general  journal  and  general  cash  book  in  one  binding  to 
show  transactions  involving  all  three  on  each  double  page. 

8.  Explain  the  difference  between  gross  and  net  floating  debts, 
and  what  is  generally  meant  by  the  term  "floating  debt"  without 
the  word  "gross"  or   "net"  preceding  it. 

9.  Does  conservative  financiering  permit  of  the  capitalization 
of  sinking  funds  under  mortgages?     Give  reasons  for  answer. 

10.  What  is  the  Treasury  Stock  of  a  corporation? 


CHICAGO,  MAY  10,  1905. 
(Time  3  Hours.) 

1.  Give  your  views  as  to  the  better  way  of  carrying  property 
accounts   in  a  manufacturing  business;   whether  at  cost  or  value. 
Give  also  the  manner  of  treating  depreciation  under  each  method. 

2.  Explain  difference  between  Auditor's  reports  and  certificates, 
and  the  responsibility  under  each. 

3.  A  Company  whose  stock  is  widely  distributed  and  much 
dealt  in,  increases  its  capital  stock  of  $500,000.00  by  a  stock  dividend 
of  100  per  cent.     Some  years  subsequently  an  original  stockholder 
brings  suit  for  elimination  from  the  capital  stock  of  what  he  claims 
is  "water."     How  can  the  stock  issued  as  the  dividend  be  elimin- 
ated from  the  $1,000,000.00  of  stock  outstanding? 

4.  A  merchant  furnishes  his  offices  upon  the  hire  purchase  sys- 
tem, making  equal  monthly  repayments  which  include  principal  and 
interest  over  a  term  of  years. 

Describe   (without  the  use  of  figures)   the  correct  method  of 
recording  the  transaction  in  the  merchant's  book  of  account. 

5.  Describe  briefly  a  good  system  for  checking  cash  receipts 
in  a  large  retail  business,  assuming  that  the  business  consists  en- 
tirely of  ready  money  sales,  and  that  no  credit  is  given. 


124      ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

6.  From  what  source   does   the  surplus   of  a  Life  Insurance 
Company  arise,  and  state  what  insurance  surplus  actually  i^. 

7.  What  are  the  important  things  to  be  shown  by  an  executor  in 
keeping  the  accounts  of  an  estate  in  trust? 

8.  Prepare  list  of  accounts  to   show  the  operations  of  some 
manufacturing  business,   giving  the   accounts  the  order  you  think 
proper  for  the  presentation  of  statements,  etc. 

9.  In  an  accounting  system  embodying  a  store-room,  how  should 
payments   on   account,   covering  an    investment  charge,  be  treated, 
and  how  should  the  final  bill  be  treated? 

10.  The    Head   Office    in   New    York   on   January   3ist   mails 
$5,000    to   branch    house    in    Chicago,    telegraphing    to    that   effect: 
how  should  this  item  be  handled  by  branch  house,  so  that  their 
account  with  Head  Office  will  agree  in  the  trial  balance  taken  as  of 
January  3ist. 


CHICAGO,  MAY  8,  1906. 
(Time  3  Hours.) 

1.  Special  Trustees   are  named  in   a   Will   to   administer  ten 
separate  trusts,  the  terms  of  which  are  that  the  beneficiaries  named 
in  each  trust  shall  receive  the  income  on  certain  specific  amounts 
on  a  4%  basis.     The  trustees  after  making  an  appraisal  of  various 
securities  left  by  the  decedent,  turn  over  to  each  trust  certain  se- 
curities which  on  a  4%  basis  will  make  the  amount  specified  in  the 
will.     They  open  one  set  of  books  to  take  care  of  all  transactions 
affecting  the  ten  trusts.     Prepare  the  opening  entry  or  entries  on 
the  journal,   and  describe  the  best   form  and  rulings   for  keeping 
these  trusts  in  one  set  of  books. 

2.  Describe  briefly  a  simple  system  of  bookkeeping  for  either : — 

(a)  A  proprietor  or  lessee  of  a  theatre,  who  receives  all  profits 
accruing  from  the  production  of  plays  in  such  theatre  after  paying 
to  the  theatrical  company  a  certain  percentage  of  the  gross  receipts. 

(b)  A   village,    town   or   city   in    respect   to   keeping   accurate 
records  of  special  assessments. 

3.  Discuss  the  term  "Income  and  Disbursements"  as  used  on 
Annual  Reports  of  Life  Insurance  companies  furnished  to  various 
State  insurance  departments.    What  do  Non-Ledger  Liabilities  and 


THEORY  OF  ACCOUNTS 

cm-Ledger  Assets  include  in  such  reports?  What  dangers,  if 
any,  may  be  anticipated  by  a  method  of  bookkeeping  where  certain 
liabilities  and  assets  are  not  carried  on  the  books  of  account? 

4.  Describe  the  various  methods  which  you  have  met  with  for 
writing  off  the  premium  on  bonds  purchased,  pointing  out  their 
weaknesses  or  advantages.  What  is  the  most  scientific  method  of 
dealing  with  premiums  paid  and  upon  what  principle  is  it  based? 

§5.     Sketch  forms  of  disbursement  voucher  and  journal  voucher, 
hat  method  would  you  use  to  insure  prompt  return  of  vouchers 
it  out,  and  what  is  your  method  of  filing  all  vouchers  for  ready 
Eerence  ? 
6.     Name   the  various   methods   of   distributing   "Factory  Ex- 
pense" or  "Factory  Burden,"  so  as  to  apportion  same  to  the  cost  of 
the  article  or  articles  manufactured,  stating  advantages  of  each  in 
various  kinds  of  business. 

7.  Explain  how  you  would  install  for  a  large  concern  a  system 
of  bookkeeping  arranged  so  that  only  the  proprietor  or  officers  of 
the    company,   together  with  their   auditor    (a   certified  public  ac- 
countant)  shall  be  cognizant  of  its  financial  condition  and  annual 
profits  or  losses. 

8.  A  Land  Company  or  Association  is  incorporated  and  pur- 
chases fifty  acres  of  land  which  it  sub-divides  into  blocks  and  lots. 
It  then  negotiates  the  sale  of  first  mortgage  bonds  on  the  whole 
property,    from  the  proceeds   of  which   it  makes  the  streets,   lays 
the  sewers  and  sidewalks  and  carries  out  other  improvements,  after 
which  it  places  the  lots  on  the  market  for  sale.     Wherein  do  these 
bonds  differ  from  those  secured  by  a  plant?     Describe  the  journal 
entries  you  would  expect  to  make  on  the  sale  of  one  of  these  lots 
sold    on    a    contract.      The   contract   provides   that   when    one-half 
of  the  purchase  price  had  been  paid,  title  will  be  given  to  the  pur- 
chaser subject  to  a  mortgage  for  the  unpaid  portion.    What  entries 
would  you  then  make?    How  would  you  close  the  books  at  the  close 
of  each  fiscal  year? 

9.  Describe  fully  what  procedure  and  methods  you  would  adopt, 
if  called  upon  to  introduce  and  install  an  entirely  new  system  of 
bookkeeping  (not  cost  accounting)  into  the  office  of  a  large  manu- 
facturing concern. 

10.  Draw  up  a  form  of  "Check  Register"  to  be  used  in  con- 
junction   with    a    complete    Voucher    System,    it    being    intended 


126      ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

that  the  Check  Register  shall  take  the  place  of  the  disbursement 
side  of  the  Cash  Book  and  shall  also  record  the  deposits  and  with- 
drawals in  three  different  bank  accounts.  Discounts  on  goods 
purchased  to  be  handled  through  the  Voucher  Journal. 

CHICAGO,  MAY  7,  1907. 
(Time  3  Hours.) 

1.  A  criticism  often  heard  in  respect  to  the  "Voucher  System" 
is  that  it  entails  too  much  red  tape.     Is  this  a  just  criticism,  and  if 
so  under  what  circumstances?     Discuss  briefly  the  advantage  of  a 
Voucher  system. 

2.  Draw  up  a  form  of  Balance   Sheet  for  a  manufacturing 
Company  owning  its  own  plant,  so  as  to  also  show  at  a  glance  the 
amount  of  circulating  capital  invested. 

3.  A  construction  company  desires   always  to  show  upon  its 
ledger  the  balance  of  its  liability  for  contracts  entered  into  and  to 
be    carried    out    by    sub-contractors.    There    is    however   no    actual 
liability  until  the  sub-contractor  has  completed  the  whole  or  a  part 
of   his   work.      Payments   by  the  construction   company  are   to  be 
made  as   the  work  progresses   based  upon  the  estimates   of  their 
engineer,   less   a   15   per  cent  reduction  which   later  is   allowed  to 
accumulate  until  all  the  work  under  the  contract  has  been  satis- 
factorily completed.    A  voucher  system  is  used  by  the  construction 
company.     Show  the  form  of  the  journal  entries  necessary  to  bring 
the  above  transactions  on  the  books  of  the  construction  company. 

4.  Name   the   advantages    or   disadvantages   of    the   following 
two  methods  of  bringing  on  to  the  books  of  a  company  the  deprecia- 
tion on  its  machinery: 

(a)  Crediting   Machinery   Account   with   ten   per   cent    of   the 

balance  of  the  Account  each  year  and  charging  Profit  and 
Loss. 

(b)  Crediting  a  Reserve   for  machinery  depreciation  with  ten 

per  cent  of   the  balance  of   the  account  each  year  and 
charging  Profit  and  Loss. 

How   can   you   combine   the  best   features  of  both   the   above 
methods? 

5.  A  corporation  leases  certain  premises  for  a  period  of  ten  years 
for  a  total  rental  of  $450,000,  to  be  paid  in  monthly  installments  of 
$3,750  each.    It  is  however,  later  arranged  that  they  shall  pay  $25,000 


THEORY  OF  ACCOUNTS  127 


six  months  prior  to  actual  commencement  of  the  lease,  for  which 
advance  they  shall  receive  a  credit  applying  on  the  total  of  $450,000, 
amounting  to  $30,000,  the  difference  between  the  $30,000  and  the 
amount  actually  paid  of  $25,000  representing  compound  interest  on 
the  advance.  Under  this  plan  they  are  to  make  120  monthly  pay- 
ments of  $3,500  each.  Describe  briefly  how  you  would  handle  this 
transaction  on  the  books  of  the  corporation. 

6.  What  is  a  "Perpetual  Inventory?"    Outline  a  plan  by  which 
not  only  the  storekeeper  may  know  readily  the  quantity  of  goods 
on  hand  of  each  and  every  kind,  but  which  also  enables  the  general 
office  to  have  the  same  information  on  its  own  Stock  Books. 

7.  Describe  briefly  how  you  would  bring  upon  the  books  of  a 
company  a  sinking  fund  created  for  the  purpose  of  finally  redeeming 
its  bonded  indebtedness.     How  would  you  treat  the  assets  of  this 
fund  and  investment  of  same?     Finally,  how  would  you  show  the 
condition  of  this  fund  in  the  Balance  Sheet  of  the  company? 

8.  Under  what  circumstances  is  it  necessary  to  open  a  good- 
will account?     What  advantages  are  there  in  allowing  it  to  remain 
open   indefinitely   on   the   books?     If   the   assets   taken   over   by   a 
company  are  in  excess   of  its  capital  stock,  would  you  credit  the 
excess  to   surplus?     If  not,  why  and  to  what  account  would  you 
credit  such  excess? 

9.  A  corporation  located  in  Chicago  that  has  been  very  lax 
in  its  accounting  methods  carries   a  freight  account  into  which  it 
charges    all   payments    of    whatever   nature    it   makes   to    Railroad 
Companies,   even   payments    made   on   the   delivery   of   goods   pur- 
chased   F.    O.    B.    Chicago.      If    called    upon    to    reorganize    their 
methods  what  suggestions  and  alterations  would  you  make  in  respect 
to  this  subject?     State  your  reasons. 

10.  What  are  "Hidden  Reserves?"     Express  your  opinion  on 
their  soundness  or  otherwise  from  the  viewpoint  of  a  shareholder, 
a  director,  and  the  auditor  of  a  company  respectively. 


CHICAGO,  ILL.,  DECEMBER  3,  1907. 
(Time,  3  Hours.) 

i.  Outline  a  practical  method  for  ascertaining  the  unearned 
discount  on  paper  taken  by  a  banking  concern,  when  it  is  necessary 
to  publish  a  statement  showing  the  financial  position.  Why  do 


128      ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

bankers  generally  omit  to  state  a  liability  of  this  kind? 

2.  Define  and  differentiate  your  understanding  of  a  trial  bal- 
ance; a  balance  sheet;  statement  of  affairs;  trading  statement. 

3.  List  the  books  of  account  and  the  principal  impersonal  ac- 
counts of  the  following: 

(a)  Stock  Broker. 

(b)  Cold   Storage. 

(c)  Trade  Union  Headquarters. 

4.  Outline  a  system  for  handling  the  accounts  of  a  large  retail 
jewelry  store,  explaning  specially  how  you  would  arrange  to  guard 
against  possible   dishonesty  of   such   employees   as   have   access  to 
valuable  jewels  and  plate. 

5.  Give  proper  disposition  of  any  balance  appearing  in  a  Profit 
and  Loss  account  at  the  end  of  the  fiscal  year. 

6.  Outline  your  understanding  of  the  most  approved  method  of 
keeping  a  merchandise  account  and  give  titles  of  subdivisions  you 
would  suggest. 

7.  What  meaning  does  the  appearance  of  a  sinking  fund  ac- 
count in  a  balance  sheet  convey  to  you?     Should  a  sinking  fund 
represent   specific   investments,    or   may   it  be   offset  by   equivalent 
ledger  entries. 

8.  Define  your  understanding  of 

(a)  Reserve  Account. 

(b)  Reserve  Fund. 

(c)  Income  and  Expenditures. 

(d)  Receipts  and  Disbursements 

(e)  Good  Will. 

(f)  Income  Bonds. 

9.  Why  is  it  customary  in  stock  brokers'  or  Board  of  Trade 
accounting  to  omit  to  charge  interest  on  short  sales  made  for  their 
customers? 

10.  In  the  examination  of  the  accounts  of  a  stock  broker  who 
is  a  large  borrower  from  different  banks  by  means  of  promissory 
notes  which  he  has  issued  from  time  to  time,  outline  method   for 
determining  at  any  time  particulars  of  the   collateral  placed  with 
each   note,    changes   in   which   occur    frequently   and   the   collateral 
itself   being   in    some   cases   the    individual    property   of   the   stock 
broker;  in  some  cases  entirely  the  property  of  his  clients,  and  more 
generally  such  securities  as  have  been  bought  on  margins  for  the 
clients. 


THEORY  OF  ACCOUNTS  129 

CHICAGO,  ILL.,  MAY  4,  1908. 
(Time,  3  Hours.) 

1.  State  the  most  approved  method  to  be  adopted  in  writing 
the  cost  of  a  lease  extending  over  several  years. 

2.  What  is  a  consignment  account,  and  how  should  it  be  stated 
a  balance  sheet? 

What  is  the  general  purpose  of  a  distribution  account? 

3.  Note  different  methods  by  which   depreciation  on  patents, 
lildings  and  machinery  may  be  provided  for,  and  outline  briefly 
)ur  opinion  as  to  the  most  desirable  course  to  be  adopted. 

4.  State  your  understanding  of  the  difference  between  Gross 
Profit  and  Net  Profit. 

5.  Wherein  does  a  Trading  Account  differ  from  a  Profit  and 
Loss  Account? 

6.  Give  your  understanding  of  the  terms : 

(a)  Fixed  Assets. 

(b)  Floating  Assets. 

(c)  Wasting  Assets. 

(d)  Floating  Debt. 

Under  which  heading  would  you  place  Cash,  Bills  Payable, 
Machinery,  Buildings?  Give  other  illustrations  that  may  occur  to 
you  and  reasons  for  your  opinion  in  each  case. 

7.  Define : 

Cash  Discount. 
Trade  Discount. 
Returns  and  Allowances. 
Give  your  definition  of  a  correctly  extended  Inventory. 

8.  An  irrigation  company  which  in  past  years  has  issued  two 
classes   of  preferred  stock  at  5  and  4  per  cent  respectively — also 
certain  6  per  cent  Debentures — is  able  to  consolidate  them  into  one 
general  issue  designated  General  Consolidated  Preferred  Stock  at 
4l/2  per  cent. 

Illustrate  the  method  of  placing  the  transaction  on  the  books 
and  state  how  you  would  adjust  any  nominal  increase  of  stock 
incidental  to  the  operation. 

9.  Wherein  does  a  Balance  Sheet  usually  differ  from  a  State- 
ment of  affairs? 

10.  What  do  you  consider  the  important  features  of  a  modern 
adequate  system  of  acocunting  for  a  manufacturing  concern? 


130      ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

CHICAGO,  ILL.,  NOVEMBER  20,  1908. 
(Time,  3  Hours.) 

1.  State   approved   method   of   determining  the   liability  of  a 
company  which  sells  its  product  principally  on  six  months  time  and 
accepts  the  promissory  notes  of  its  customers  in  settlement.    These 
notes  are  discounted  at  bank  after  being  endorsed  by  the  company 
and   credited  to   Bills   Receivable   Account — consequently   the   Bills 
Receivable  Account  on  the  ledger  indicates  only  a  balance  of  un- 
discounted  bills. 

2.  Admitting  that  in  making  up  an  inventory  the  most  approved 
method  is  to  value  the  goods  at  cost  price,  can  you  state  any  instance 
where  it  would  be  permissible  to  extend  the  values  at  the  market 
price? 

3.  In  making  up  a  Profit  and  Loss  Account  at  the  close  of  a 
fiscal  year,  are  you  stating  a  fact  or  an  opinion? 

4.  Give  your  understanding  of  the  difference  between  a  cash 
account    (receipts  and  disbursements)    for  a  certain  period,  and  a 
revenue  account  covering  the  same  period. 

5.  At  the   inception   of   a   manufacturing   enterprise,   the   real 
estate  necessary  for  the  use  of  the  business  has  been  donated  by 
an  association  of  men  interested  in  the  development  of  the  town 
where    the    factory   is    erected.      The   only   provisions    is    that    the 
factory  shall  be  operated  actively  for  ten  years  and  shall  employ 
not  less  than  250  men.     How  would  you  enter  such  a  donation  of 
real  estate  upon  the  company's  books? 

6.  Do  you  consider  there  is  any  distinction  between  "Reserve 
Fund,"  and  "Reserve  Account?"    What  are  your  reasons? 

7.  Supposing  the  materials   for  making  up   a   Balance   Sheet 
by  double  entry  are  wanting,  how  can  the  profits  of  a  business  be- 
tween two  given  dates  be  arrived  at?    Give  an  example. 

8.  In  preparing  a  Profit  and  Loss  Account  and  Balance  Sheet, 
how  are  Gains,  Losses,  Assets,  Liabilities,   Capital,  Drawings,  and 
Expenditures  ascertained  and  dealt  with? 

9.  If  you  were  called  in  by  the  owners  of  a  manufacturing 
company  to  lay  down  as  perfect  a  system  of  book-keeping  and  ac- 
counts as  was  practicable,  will  you  state  what  you  would  suggest  in 
the  way  of  general  and  subsidiary  books,  and  what  other  require- 


THEORY  OF  ACCOUNTS  131 


ments,  if  any,  you  would  insist  upon  in  order  to  facilitate  the  profit- 
able working  of  the  business? 

10.     State   the  aim  and  object  of  a  cost  sheet.     Give  an  ex- 
ample from  a  business  of  your  own  choosing. 


CHICAGO,  ILL.,  MAY  3,  1909. 

(Time,  3  Hours.) 

1.  Give  your  understanding  of  the   "double  account"   system 
d  state  the  kind  of  business  undertakings  to  which  it  is  usually 

applicable. 

2.  a.     What  is  the  purpose  of  a  Profit  and  Loss  Account  and 

how  is  it  made  up? 

b.  What  does  the  balance  of  a  Profit  and  Loss  Account 

represent? 

c.  How  would  you  suggest  that  the  final  balance  in  such 

an  account  should  be  treated? 

3.  a.     Give   your   understanding  of   the   term   "Depreciation" 

and  state  wherein  it  is  or  is  not  equivalent  to  "Wear 
and  tear"? 

b.  Explain  different  methods  by  which  depreciation  may  be 
entered  on  the  books  of  account  and  state  which 
method  you  prefer,  and  give  reasons  for  your  answer. 

4.  After  having  conducted  his  business  as  a  wholesale  coal 
dealer  for  one  year,  and  keeping  only  single  entry  accounts,  the  pro- 
prietor employs  you  to  place  his  books  in  condition  to  be  kept  on  a 
system  of  double  entry.    You  find  only  a  Cash  Book,  Day  Book  and 
Ledger.    Detail  the  course  you  would  adopt  to  produce  a  Profit  and 
Loss  account  and  a  Balance  Sheet  and  for  providing  double  entry 
system  required. 

5.  It    has    been    stated    "that    Revenue    expenditures    do    not 
create  assets."    What  is  your  opinion?    Also  state  the  general  dis- 
tinction  between   Revenue   expenditures   and   Capital    expenditures. 

6.  State  three  purposes  for  which  a  Sinking  Fund  may  exist, 
and  give  an  example  of  each. 

7.  A   manufacturing  concern   with   ten   branches   in   different 
cities  wished  to  keep  all  the  accounts  at  a  central  office  and  to  know 
the  separate  results  of  the  trading  of  each  branch.     Give  a  short 
description    of   how   the    Sales,    Purchases    and   Cash   transactions 


132      ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

might  be  dealt  with,  the  goods  being  delivered  direct  to  customers 
from  each  branch,  materials  purchased  at  each  and  occasional  re- 
mittances from  customers  there  received. 

8.  Give  four  methods  of  apportioning  over-head  expenses  in 
Factory  Cost,  and  state  which,  in  your  opinion  is  the  best,  and  why? 

9.  A  manufacturer  finds  that  during  three  months  his  goods 
have  cost  per  cent,  on  the  sale  price: 

Raw  Material  30 

Wages    20 

Rent,  etc 05 

Fuel   10 

General  Expenses 15 

80 

What  should  he  add  to  his  selling  price  to  obtain  the  same 
profit  if  the  following  advances  take  place? 

Coal   50  per  cent,  advance 

Material  5  per  cent,  advance 

Wages    2^  per  cent,  advance 

10.  Give  (a)  four  examples  of  assets  that  are  Fixed  Assets  in 
connection   with   some   particular   class    of  business,   but  generally 
Floating  Assets ; 

(b)  Four  examples  of  assets  that  are  Floating  Assets  in  con- 
nection with  some  particular  class  of  business,  but  generally  Fixed 
Assets. 


CHICAGO,  ILL.,  MAY  2,  1910. 
(Time,  3  Hours.) 

i.  A  Chicago  Trading  Corporation  does  business  in  Peru, 
where  its  capital  is  invested,  a  Balance  Sheet  and  Profit  and  Loss 
Account  in  Peruvian  currency  being  sent  over  at  the  end  of  each 
year  for  amalgamation  with  the  Chicago  accounts.  During  a  given 
year  a  heavy  fall  in  exchange  takes  place.  How  would  you  value 
the  Peruvian  assets  for  the  purpose  of  the  Chicago  Balance  Sheet? 
Would  you  treat  the  works  and  plant  differently  from  the  floating 
assets?  If  so,  why? 


THEORY  OF  ACCOUNTS  133 


2.  How  would  you  deal  in   farm  bookkeeping,  with  growing 
crops,  and  stock  in  process  of  increase? 

3.  If  A.   B.,  a  wholesale  stationer,  after  taking  stock  found 
it  necessary  to  suspend  payment,   and  requested  you  to  prepare  a 
statement  of  his  affairs  to  be  laid  before  his  creditors,  what  would 
such  a  statement  comprise?     Explain  in  what  respect,  if  any,  the 
summary  of  assets  and  liabilities  would  differ   from  the  ordinary 
Balance  Sheet  of  his  business. 

4.  Give  a  form  of  Cash  Book  adapted  to  save  the  labor  of  post- 
ing, and  suitable  for  a  charitable  institution  whose  income  is  chiefly 
derived  from  subscriptions,  donations  and  investments.    Write  speci- 
men entries  not  exceeding  eight  on  each  side. 

5.  Describe    shortly   how    you   would    make    up   the   Trading 
Account  of  a  business  where  there  were  no  regular  books  of  ac- 
count, and  in  respect  of  which  you  were  able  to  obtain  only  the 
Bank  Book,  Cheque  Book  Stubs,  Petty  Cash  Book,  unpaid  accounts, 
a  Memo  Ledger  of  Customers  and  a  rough  Journal. 

6.  An  old  established  and  highly  prosperous  business  is  trans- 
ferred in  1900  to  a  Company  which  pays  the  proprietors  $300,000  for 
all  fixed  assets  and  $50,000  for  good  will.    In  1909  the  Company  has 
accumulated  $125,000  of  undivided  profits  and  the  Directors  decide 
to  charge  off  the  entire  item  of  good  will.     What  effect  will  this 
have  upon  the  accounts? 

7.  What  is  your  understanding  of  the  term  "Reserve  for  Bad 
and  Doubtful  Debts,"  and  how  would  you  (a)  establish  it  upon  the 
ledger;   (b)   state  it  upon  the  Balance  Sheet. 

8.  It  has  been  stated   "that  the  right  to   declare  a   dividend 
depends  upon  the  state  of  a  company's  finances  at  the  time  when  the 
dividend  is  declared."     Give  your  opinion  brefly  as  to  conditions 
under  which  a  Company  may  borrow  money  for  the  purpose  of  pay- 
ing a  dividend. 

9.  Outline  a  method  by  which  an  approximate  inventory  may 
be  determined  in  the  case  say  of  a  merchant,  whose  stock  of  mer- 
chandise has  been  destroyed  by  fire,  but  the  invoices,  sales  books 
and  books  of  account  have  been  saved. 

10.  What  items  of  expenditure  should  be  -treated  as  assets  at 
the  close  of  a  fiscal  period? 


134      ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

CHICAGO,  ILL.,  DECEMBER  21,  1910. 
(Time,  3  hours.) 

1.  Irrespectively    of    the    independent    Audit    by    a    Certified 
Public    Accountant,    how    would    you    endeavor    to    organize    the 
financial  arrangements  and  the  system  of  Bookkeeping  of  a  large 
Firm  or  Corporation,  so  that  there  might  be  the  best  internal  check 
possible? 

2.  Give  an  example  of  that  portion  of  the  Balance  Sheet  of  a 
Corporation,   which   deals   with   the    Share   and   Debenture    Capital 
Account     State  and  set  out  the  same  in  the  proper  columns,  as- 
suming the  following  to  be  the  position  of  the  Company's  Share  and 
Debenture  Capital: 

Share   Capital,   Authorized    $100,000  oo 

Share  Capital,  Issued  or  Subscribed   80,000  oo 

Share  Capital,  Called  up  60,000  oo 

Calls  paid  in  advance   5,ooo  oo 

Calls  in  arrear    1,000  oo 

Debenture   Capital,  Authorized    50,000  oo 

Debenture  Capital,  Issued  or  Subscribed   40,000  oo 

Debenture  Capital,  Paid  up   35,ooo  oo 

3.  An  Executor,  on  entering  upon  his  duties,  having  asked  you 
to  give  him  instructions  in  writing  how  he  should  deal  with  and 
keep  the  Accounts  of  his  trust,  specify  your  instructions  in  the  form 
of  a  letter. 

4.  A  Company,  having  $500,000.00  of  Debentures,  bearing  5  per 
cent,   interest,  which  have  been  in  existence   for  some  years,   and 
which   are   repayable  February   ist,    1907,   arranges   to   provide  the 
necessary  Capital  by  the  issue,  at  par,  of  $500,000.00  4  per  cent,  per- 
manent Debenture  Stock,  the  interest  on  which  runs  from  January 
ist,  1907;  the  Accounts  of  the  Company  are  made  up  to  June  30th, 
1907.     What,  in  your  opinion,  is  the  proper  amount  of  Debenture 
Interest  to  be  charged  against  the  profits  of  the  half  year?     Give 
the  reasons  upon  which  your  opinion  is  based. 

5.  A  Firm  is  in  the  habit  of  supplying  goods  on  the  principle 
of  sale  or  return,  taking  payments  by  installments  covering  princi- 
pal and  interest,  the  purchaser  having  the  option  to  return  the  goods 
at   any   time,    forfeiting   the   installments   paid.     How   would   you 


THEORY  OF  ACCOUNTS  135 


recommend  that  such  conditional  sales  should  be  entered  in  the 
Books  of  the  selling  firm,  and  how  should  the  outstanding  amounts 
be  from  time  to  time  valued? 

6.  The  calculation  of  the  percentage  of  profits  is  sometimes 
based  upon  cost  and  sometimes  upon  selling  price.     Which  do  you 
regard  as  the  more  correct  method?     and  how,  if  required,  would 
you  readily  arrive  at  the  cost  of  goods  sold?     Give  your  reason. 

7.  In  a  large  manufacturing  concern  purchases  of  material  and 
supplies  pass  through  the  storekeeper.     What  system  of  bookkeep- 
ing and  check  would  you  advise  to  safeguard  and  control  the  dis- 
tribution of  both?     Fully  explain  the  same. 

8.  In  closing  the  books  of  a  company  at  the  fiscal  period,  what 
steps  would  you  take  to  insure  that  all  liabilities  to  date  had  been 
included? 

9.  In  taking  off  a  trial  balance,  a  bookkeeper  finds  that  his 
debit  footings  exceed  the  credit  by  $131.56,  which  he  carries  to  a 
suspense  account.     Later,  he  discovers  that  a  purchase  amounting 
to  $417.50  has  been  debited  to  a  creditor  as  $192.94;  that  $312.50 
for  depreciation  of  furniture  has  not  been  posted  to  depreciation 
account;   that  $500  withdrawn  by  the  principal  has  been   charged 
against  wages  account;  that  a  discount  of  $76.13  allowed  to  a  cus- 
tomer has  been  credited  to  him  as  $71.13,  and  that  the  total  of  sales 
returned   was    footed   $5.00   short.     Give    detailed   entries    showing 
how  .you  would  remedy  these  errors,  and  starting  with  the  original 
difference   prepare   a    supplemental   trial   balance   showing  whether 
the  books  balance  or  not. 

10.  A  corporation's  profits   for  the  year  ended  December  31, 
1908,  amount  to  $451,000.     The  by-laws  require  a  reserve  equal  to 
10  per  cent,  of  any  dividend  paid  to  the  common  stockholders,  and 
any  surplus  remaining  after  such  dividend  has  been  paid  is  also  to 
be  applied  to   the  reserve,  until   such  reserve  account  amounts  to 
$250,000.     The  reserve   at   December  31,   1907,  was  $156,020.     The 
capital  is  $2,000,000 — one-half  cumulative  preference  6  per  cent,  and 
one-half  common,  all  fully  paid.     On  December  31,  1908,  the  pre- 
ferred dividend  is  two  and  one-half  years  in  arrear.    On  December 
31,  1907,  profit  and  loss  account  was  in  debit  $202,000.    Set  our  your 
treatment   of   the  profit   for    1908,   and   comment  concisely   on   the 
position. 


136      ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

CHICAGO,  ILL.,  MAY  23,  1911. 
(Time,  3  hours.) 

1.  "A"  died,  leaving  an  estate  consisting  of : 

Real    Estate,   valued   at $30,00000 

Share   in    Partnership,   estimated  at 175,00000 

Share    of    Stock 7S,ooo  oo 

Household  Furniture  19,500  oo 

Cash  at  Bankers 4,000  oo 

The  will  provided  for  an  annuity  of  $1,000.00  payable  to  Tes- 
tator's wife  out  of  income,  the  remainder  of  the  income  being  di- 
visible among  his  six  children  equally  so  long  as  they  live  and  until 
the  youngest  attains  the  age  of  21  years. 

What  books  and  accounts  would  you  open  for  the  executors,  and 
what  information  would  you  require  to  enable  you  to  write  them 
up  and  adjust  the  capital  and  income? 

2.  The  Bristol  Manufacturing  Company  issued  and  sold  on  the 
ist  of  January,  1911,  to  A  and  B,  100  (50  to  each  at  the  same  price) 
First   Mortgage   Bonds   of   $500.0  each,   bearing  interest  at  4  per 
cent,  per  annum,  and  received  $48,000.00  in  cash. 

What  records  of  the  transactions  should  be  made,  and  in  what 
books? 

3.  The   profits   of    a   corporation   with    a   paid   up   capital    of 
$5,000,000.00   amount  to   $337,193.08   for  a  given  year,  without   al- 
lowing   for    its    mortgage    interest.      At   the    end    of    the   previous 
financial    year   there    was    left    a   balance    of    undivided   profits    of 
$27,806.92. 

Its  4  per  cent,  mortgages  are  $500,000.00  and  its  6  per  cent, 
mortgages  are  $750,000.00.  How  much  must  be  taken  from  the 
previous  year's  Surplus  balance  to  pay  the  Stockholders  a  dividend 
of  6  per  cent. 

4.  A   charitable   institution   receives   annual   subscriptions   and 
donations  and  employs  a  canvasser  who  has  to  induce  persons  to 
become  subscribers  and  who  is  also  authorized  to  receive  subscrip- 
tions and  donations. 

State  what  you  consider  the  best  system  of  bookkeeping  to 
guard  against  peculation,  and  what  regulations  you  would  lay  down 
for  the  conduct  of  the  financial  affairs  of  the  institution. 

5.  Specify  some  of  the  closing  entries  to  be  made,  after  the 
agreement  of  the  Trial  Balance  in  the  books  of  an  architect's  busi- 
ness in  which  two  partners  are  interested. 


THEORY  OF  ACCOUNTS  137 

6.  Make  out  a  Foreign  Bill  of  Exchange  in  duplicate.     Why 
is  the  bill  duplicated?     What  happens  when  the  'First'  is  presented 
to    the    drawee    for    acceptance    and    it    is    the    'Second'    which    is 
endorsed. 

7.  A  manufacturing  concern  finds  that  in  the  past  fiscal  year  the 
prime    or   manufacturing   profit    was   thirty-four   per   cent,    of    the 
profit  on  sales.     On  June  30  of  the  current  period  the  Directors 
want    an    approximate    inventory    without    count    or    schedule    and 
call  upon  you  to  do  so.     Illustrate  your  plan  of  procedure — (150- 
200  words.) 

8.  In  summarizing  the  nominal  accounts  of  a  manufacturing 
concern  to  determine   the  results   of  operations   for  a  period    (a) 
what  would  be  the  order  and  character  of  the  three  closing  ac- 
counts?  (b)  What  nature  of  accounts  form  the  elements  of  each? 
(c)    Give  your  reasons. 

9.  What  form  of  ledger  would  be  appropriate  to  an  enter- 
prise in  which  the  accounts  bear  interest  at  5  per  cent,  per  annum 
en    current    transactions;    illustrate    a    ledger    account    in    detail, 
showing   the   method   of   computing   the   interest   and   balancing   it 
into  principal  semi-annually. 

10.  What  is  an  accommodation  bill?     Describe  the  three  usual 
methods  of  raising  money  on  such  paper. 


CHICAGO,  ILL.,  MAY  28,  1912. 

(Time,  3  Hours.) 

Answer  ALL  of  the  following  SIX  questions. 

1.  (a)  What  do  the  terms  "Capital  Assets,"  "Current  Assets" 
and   "Quick  Assets,"    signify   to   you?     Under   what   group  would 
you  classify  "Floating  Cooperage,"  in  the  accounts  of  a  Brewery; 
"Horses   and    Stable   Equipment"    in   the   accounts   of   an    Express 
Company;  and  "Live  Stock"  in  the  accounts  of  a  Ranch  or  Farm. 

(b)  Distinguish  between  "Funded"  and  "Floating  Indebted- 
ness," and  state  under  what  category  you  would  place  "Deferred 
Purchase  Money  Obligations."  State  what  you  understand  by 
"Deferred  Purchase  Money  Obligations,"  giving  an  illustration. 

2.  A    Commercial    Concern    in    Chicago    doing    an    extensive 
inter-state  and  foreign  business,  maintains  branch  offices  at  London, 


138      ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

Paris  and  Turin,  the  two  latter  being  subordinate  to  the  London 
office.  The  European  Manager  in  London  is  required  to  approve 
and  forward  to  Chicago  each  month  the  several  district  reports  of 
Gross  Sales,  Receipts  and  Disbursements  made  up  in  the  currencies 
of  the  respective  countries.  In  order  that  the  progressive  monthly 
results  may  be  readily  grasped  by  the  Chicago  officials,  how  should 
these  reports  be  recorded  on  the  Chicago  books?  Explain  the  meth- 
od you  would  recommend  so  that  the  entries  would  be  susceptible 
of  proof  at  any  time ;  and  what  treatment  would  you  advise  for  the 
fluctuations  of  exchange  respectively  as  to  sterling,  francs  and  lire? 

3.  (a)  Explain  the  theory  of  a  Depreciation  Reserve,  and  for 
what  purposes  should  such  an  account  be  used?    As  Auditor  of  a 
Manufacturing  concern  where  such  an  Account  was  kept,  what  would 
be  your  duties  in  respect  thereto ;  and  what,  if  any,  charges  would 
you   permit   to   be   made   to   the   Account? 

(b)  What  is  a  "Sinking  Fund,"  and  how  is  it  created?  When 
applied  to  the  redemption  of  "Bonded  Indebtedness,"  what  provis- 
ions pertaining  thereto  do  you  usually  find  in  a  Mortgage  or  Trust 
Deed?  Upon  what  different  basis  may  the  amount  of  annual  install- 
ments for  a  Bond  Sinking  Fund  be  determined ;  explain  fully. 

4.  John  Barton  leases  a  coal  mine  from  Thos.  Sutton  upon  the 
following  terms :     At  a   Royalty  of  25c  a  ton  as  rental,  with  an 
annual  minimum  of  $500.00 — the  privilege  being  given  to  recover 
"Dead"  or  "Unearned"  minimum  rent  within  a  period  of  20  years. 

Draft  the  Journal  Entries  relative  to  the  following  output  for 
5  years : 

ist  Year  1,000  Tons — 2nd  year  2,500  tons 

3rd     "     4,500     "     — 4th  year  1,800  tons    (Strike) 

5th     "     3,800     « 

5.  (a)   In  the  Balance  Sheet  of — 

(1)  A  Steam  Railroad  Company;  and 

(2)  A  Manufacturing  Concern 

how  should  Commissions   paid  and  Discounts 
allowed  on  Bonds  sold,  be  treated? 

(b)  In  the  Balance  Sheet  of  a  Corporation,  how  should  the 
following  items  be  stated? 

(a)  Reserve    against    Estimated    Loss    on    Accounts    Re- 

ceivable 

(b)  Reserve  for  Contingencies 

(c)  5%   Mortgage   Bonds — 


THEORY  OF  ACCOUNTS  139 

Authorized    ! $1,000,000.00 

Certified   and   Issued    by    the    Trustees, 
$750,000.00,  viz.: 

(1)  In     hands     of     the 

Public    $400,000.00 

(2)  Pledged    as    Collat- 

eral to  secure  the 
Company's  Notes 
Payable  100,000.00 

(3)  In    the    custody    of 

the    Treasurer    . .  250,000.00 


$750,000.00 

6.  A  firm  of  Jobbers — Shea,  Kargeau  &  Co. — to  provide  against 
financial  strain  in  the  event  of  the  death  of  one  of  the  Partners, 
takes  out  a  joint  Life  Insurance  Policy  for  $15,000.00,  the  annual 
premium    ($750.00)    being  charged  as  a  feature  of  the  Profit  and 
Loss   Account.     Eight  years   thereafter  the   Junior   Partner   died; 
assuming  that  they  are  equal  partners,  you  are  called  in  to  adjust 
the   accounts  upon  receipt  of  the   Insurance   money.     Explain  the 
method  you  would  follow. 

Answer  any  FOUR  of  the  following  SIX  Questions: 

7.  In   Cost  Accounting,  what  is  meant  by  "Burden",  "Over- 
head", "On  Cost"?     State  the  various  methods  with  which  you  are 
familiar  for  the  absorption  of  the  General  Factory  Expenses  in  the 
•cost  of  the  Finished  Product,  and  state  the  advantages  and  disad- 
vantages of  each  method. 

8.  A.  T.  Stewart  &  Co.  of  New  York  owe  Robillard  et  Cie  of 
Paris,  France,  2,515  francs.     R.  et  Cie's  account  on  A.  T.  Stewart 
&  Co.,s  ledger  shows  a  credit  balance  of  $485.52  as  the  debt  was 
recorded  at  the  rate  of  exchange  of  5.18  francs  to  the  $1.00.    To  pay 
the  account  A.  T.  Stewart  &  Co.  gave  a  Bill  of  Exchange  on  Paris 
for  the  amount  at  the  rate  of  5.19^  francs  to  the  $1.00.     Sketch 
A.  T.  Stewart  &  Co.'s  Ledger  Account  with  R.  et  Cie  after  being 
posted  and  balanced  off,  and  draw  the  Bill  of  Exchange. 

9.  State  concisely  the  essential  difference  between  the  accounts 
of  a  Charitable  Institution  kept  on  a  so-called  "Cash  basis"  and  on 


140      ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

an   "Income  and  Expenditure"  basis.     Would  the   same  principles 
apply  as  regards  the  accounts  of  a  City  or  Municipality? 

10.  A.  B.  &  Co.  of  Chicago,  111.,  supplies  goods  to  D.  D.  &  Co. 
of  Bloomington,  111.,  at  various  dates,  and  the  latter  offers  a  four 
months'  note  with  interest  at  5%  added  to  note  from  average  date; 
the  invoices  are  as  follows : 

Aug.   14,  191 1 $2,700  oo 

Sept.     5,     " 3,950  oo 

Oct.     17,     "    1,290  oo 

Nov.   12,     "    780  oo 

Draw  up  the  note,  dating  it  at  the  average  date. 

11.  Compare  the  advantages  and  disadvantages  of  a  "Voucher 
Record  System"  as  opposed  to  an  Accounts  Payable  or  Creditor's 
Ledger  system  with  Purchase  Journal,  and  state  what  you  would 
recommend. 

12.  An   industrial  corporation  has   an   issue   of  bonds   falling 
due  in  fifteen  years,  and  has  accumulated  a  fund  annually  from 
Profits  with  which  to  pay  off  the  Bonds  at  maturity.     The  Fund 
is    invested  in   interest-bearing  securities.     How  will   the  payment 
of  the  Bonds  affect  the  figures  and  items  in  the  Balance  Sheet? 


COMMERCIAL  LAW 

CHICAGO,  NOVEMBER  20  AND  3D,  1903. 
(Time  3  Hours.) 

1.  Name  the  necessary  condition  upon  which  the  validity  of 
a  contract  depends.     Discuss  briefly  the  relative  merits  of  an  oral 
as  compared  with  a  written  contract. 

2.  Define  partnership.     What  is  a  limited,  or  special,  partner- 
ship?   State  in  general  the  provisions  of  the  Illinois  statutes  relating 
thereto. 

3.  In   respect  to   Illinois   Corporation   Law :    (a)    How  many 
incorporators     are     required?      If     any     exceptions,     name     them. 

(b)  What  is  the  limit  of  time  for  which  incorporations  can  be  had? 

(c)  How   soon   after   incorporation   must   a   corporation   organize 
and  begin  business? 

4.  State   the   difference   between   a    sale   and   a   consignment. 
What  is   an  "Account  Sales"?     What  kind  of  action  can   a  con- 
signor maintain  against  a  consignee  who  converts  to  his  own  use 
the  proceeds  of  the  sale  of  a  consignor's  goods? 

5.  Under  what  circumstances  can  a  business  house,  having  sold 
a   bill    of    merchandise,    stop   the   goods    in   transit   to   the   buyer? 
How  long  does  the  seller  of  a  bill  of  goods  retain  a  lien  on  such 
goods? 

6.  Can   a   corporation   legally   purchase   or  otherwise   become 
possessed  of  its  own  capital  stock?    Do  the  admissions  of  a  stock- 
holder or  a  director  legally  bind  a  corporation  ?    Under  what  author- 
ity can  a  corporation  issue  a  mortgage  upon  its  own  property? 

7.  When  are  common  carriers  not  financially  responsible  for 
the  goods  entrusted  to  their  care  for  purposes  of  transportation? 

8.  Define    the    following   legal    terms :      (a)    Accommodation 
Paper,      (b)    Beneficiary,     (c)    Bill   of  Exchange,      (d)    Choses  in 
Action.      (e)     Demurrage.      (f)     Escrow.      (g)     Collateral.      (h) 
Vendor. 

141 


142      ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

9.  Define  the  terms : — Trustee,   Receiver,  Executor,  Adminis- 
trator,   Conservator    and    Guardian,    stating   in   what    respect    they 
differ  from  each  other. 

10.  On  whom  does  loss  legally  rest  in  case  of  a  forged  cer- 
tificate of  the  Capital  Stock  of  a  corporation? 

11.  What   class    of   property   are    the    engine   and    cars    of   a 
railroad    corporation?      Are    they    subject    to    execution    and    sale 
for  debt? 


CHICAGO,  MAY  2,  1904. 
(Time  3  Hours.) 

1.  What  is  the  time  for  the  payment  of  a  note  falling  due 
on  (a)  Saturday,  (b)  Sunday,  (c)  Monday,  when  Monday  is  a  legal 
holiday? 

If  the  date  of  a  note  should  be  changed  by  the  holder  with  the 
consent  of  the  payee,  would  its  validity  be  affected  thereby?  Explain 
fully. 

2.  What  rights  dees  the  holder  of  non-negotiable  paper  have 
against   the   maker   or   acceptor   as    compared   with   the    holder   of 
negotiable  paper? 

3.  Draw    up    a    form    of    "Power    of    Attorney",    conferring 
authority  on  an  agent  to  execute  a  deed,  mortgage  or  any  other 
instrument  that  has  to  be  recorded. 

4.  In  what  respects  are  partners  trustees  for  each  other,  and 
in  what  respects  are  they  agents  for  each  other? 

Is  an  innocent  partner  liable  for  the  fraud  of  his  co-partner? 
If  so,  on  what  grounds? 

5.  Will  the   assignment   of  all  the   rights,   etc.,    of   a  partner 
make  the  assignee  a  partner? 

6.  Explain    the    term    Stoppage    in    Transit.      What    are    its 
necessary  conditions  for  enforcement? 

7.  Define  Bailment  and  give  different  classifications  of   Bail- 
ments,  with   illustrations.     What    constitutes   "Slight  Negligence." 

8.  Has    an    Insurance   Company   an   insurable   interest   in   the 
property  covered  by  its  policy,  and  has  the  insured  any  interest  in 
the  re-insurance  policy? 

9.  What  is  a  Joint  Stock  Company?     In  what  ways  can  it  be 
compared  with    (a)    a  partnership,    (b)    an  incorporated  company? 


COMMERCIAL  LAW  143 


10.  Define  Treasury  Stock.  What  effect  has  the  term  "fully 
paid  and  non-assessable",  written  upon  a  stock  certificate,  in  respect 
to  the  liability  of  stockholders  to  creditors  of  the  company?  Ex- 
plain fully. 

CHICAGO,  NOVEMBER  14,  1904. 
(Time  3  Hours.) 

1.  A  promissory  note  which  appears  originally  to  have  read: 

"Chicago,  111.,  May  ist,  1904. 

Six  months  after  date  I  promise  to  pay  to  the  order  of  Richard 
Roe,  One  Thousand  Dollars. 

For  value  received,  payable  at  Chicago,  111.  John  Doe." 

is  presented  for  payment  at  maturity,  and  the  word   "payable"  is 
stricken  out.   Can  the  maker,  endorser  or  guarantor  escape  liability? 

If  the  words  "six  months"  appear  to  be  stricken  out,  and  the 
words  "one  year"  inserted,  could  the  maker,  endorser  or  guarantor 
escape  liability? 

2.  Define  the  following : 

(a)  Contract. 

(b)  Consideration. 

(c)  Promissory  note.  State  essentials  of  a  promissory  note. 

(d)  Bill  of  sale. 

(e)  Chattel   mortgage. 

3.  Is  it  necessary  or  desirable  in  Illinois  to  protest  an  Illinois 
note  in  order  to  hold  the  endorser? 

4.  How  is  the  liability  of  an  endorser  of  a  promissory  note 
payable  in  money  determined  in  Illinois? 

Is  there  any  different  rule  as  to  a  promissory  note  not  payable 
in  money,  and  if  so,  what? 

State  in  general  the  rights  and  liabilities  under  Illinois  law  of 
an  endorser  of  a  promissory  note  payable  in  money. 

5.  Mention  a  proceeding  for  the  collection  of  a  judgment  when 
it  cannot  be  collected  by  execution. 

What  is  necessary  to-  entitle  the  judgment  creditor  to  institute 
such  a  proceeding? 

6.  An   Illinois   corporation  is  duly  organized,   except  that  its 
certificate    of    incorporation    is    not    filed   in   the    Recorder's   office. 
Is    it    liable   as    a   corporation    for    debts   incurred    in    the    regular 


144      ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

course  of  its  business.     Is  any  one  else  liable  for  such  debts?    If 
so,  who? 

7.  An  Illinois  note  for  $1,000.00  dated  February  ist,  1903,  is 
payable  one  month  after  date,  with  interest  at  the  rate  of  6  per 
cent  per  annum.     It  is  not  paid  at  maturity.     What  is  the  first  day 
on  which  suit  can  be  brought? 

How  much  is  due  upon  the  note  on  that  day?    Explain  why. 

8.  A    man    having    charge    of    his    employer's    bank    account, 
forges  a  check  for  $1,000.00,  and  obtains  the  money  thereon  March 
1st.      He   speculates   and   makes   $500.00  which   he   deposits   in   his 
employer's  account  on  April  ist.     How  much  does  he  owe  his  em- 
ployer on  May  ist?     Explain  why. 

9.  John    Smith    carries    a    deposit    account    at    the    i6th    Na- 
tional Bank,  Chicago,  111.    He  gives  his  ninety-day  note  for  $1,000.00 
to  William  Jones,  which  note,  by  its  terms,  is  payable  "at  the  i6th 
National   Bank,    Chicago,   Illinois."     At  the  maturity  of  the  note, 
William  Jones  presents  the  same  at  the  i6th  National  Bank,  Chicago, 
111.     At  the  time  of  such  presentation,  John  Smith  has  a  balance  of 
$5,000.00  to  the  credit  of  his  deposit  account  at  said  bank.     Is  the 
bank  bound  to  pay  the  said  note  when  so  presented? 

10.  A  person  holds  an  estate  in  trust,  and  is  required  by  the 
terms  of  the  trust  to  pay  the  income   of  the  estate  annually  for 
five  years  to  A,  the  income  annually  for  the  succeeding  five  years 
to  B,  and  the  income  annually  for  the  succeeding  five  years  to  C. 
At   the   end   of   fifteen   years   the  principal   of   the   trust   estate   is 
payable  to  D.     At  the  beginning  of  the  trust  the  trustee  makes  a 
ten  year  loan  of  $50,000.00  at  6  per  cent  to  X,  and  receives  a  com- 
mission in  the  transaction  amounting  to  2  per  cent.    To  whom  does 
this  commission  belong  as  between  the  trustees,  A,  B,  C,  and  D? 


CHICAGO,  MAY  8,  1005. 
(Time  3  Hours.) 

1.  Is  it  necessary  to  copyright  trade  marks  and  trade  brands 
to  protect  owner  against  their  use  by  competitors? 

2.  In   the  case  o£  merchandise  left  at  the  shop  for  repairs, 
is  the  owner  of  the  shop  responsible  for  the  value  of  the  merchan- 
dise in  case  of  loss  by  fire? 


COMMERCIAL  LAW  145 

3.  A   sale  of  goods  is  made  deliverable  at  the  factory  of  a 
purchaser,   and  a  draft  drawn   for  cost  with  bill  of  lading  made 
out  in  the  name  of  the  shipper  attached,  and  such  bill  of  lading 
endorsed    in    blank.      The    draft    is    paid,    and    subsequently    it    is 
learned    that    the    goods   were    lost    in   transit.     As    between    con- 
signee and  consignor,  on  whom  does  the  loss  of  the  goods  fall? 

4.  Is  it  unlawful    on  the  part  of   an   employer  to   refuse   to 
•employ  a  man  owing  to  his  membership  in  a  Union?    Is  it  unlawful 
for  a  number  of  employers  to  make  an  agreement  not  to  employ 
Union  men? 

5.  A  salesman  is  authorized  to  sell  goods  and  collect  accounts, 
and  take  checks  to  the   order  of  his  employer.     If  the   salesman 
•endorses  a  check  for  his  employer,  and  the  same  is  cashed  by  the 
bank,  can  the  bank  be  compelled  to  repay  the  amount  of  the  check 
to  the  employer?     Explain  fully. 

6.  Is  a  railroad  company  liable   for  a  trunk   or  its  contents 
when  lost,  or  for  breakage,  if  the  contents  of  the  trunk  are  taken 
as  baggage  and  a  check  given  therefor,  while  the  actual  contents 
are  samples?     Give  reasons  for  answer. 

7.  Henry  Jones  makes  a  promissory  note  payable  to  the  order 
of  John  Smith.     It  bears  the  following  endorsement: — 

John  Doe 

Richard  Roe 

John  Smith 

It  has  been  delivered  in  this  form  before  maturity  by  John 
Smith  to  a  bona  fide  holder  for  value. 

If  it  be  an  Illinois  note,  what  are  the  liabilities  of  the  endorser 
respectively  to  the  holder. 

Would  an  extension  by  the  holder  of  the  time  of  payment 
without  the  consent  of  the  endorsers  release  all  or  any  of  them? 
If  part  of  them,  whom? 

Is  there  any  difference  in  different  states  as  to  the  liabilties 
of  irregular  endorsers,  i.  e.,  endorsers  whose  names  are  on  the  note 
for  some  purpose  other  than  transferring  title? 

8.  A  contracts  to  deliver  to  B,  f.  o.  b.  cars  at  San  Francisco, 
certain  iron  castings.     A  delivers  the  castings  to  a  railroad  at  its 
freight  depot  in  Chicago.    The  character  of  the  castings  is  apparent. 
The  freight  agent  charges  the  proper  published  rate  of  $1.50,  and  A 
prepays  the  freight  at  this  rate.     The  connecting  railroad  at  San 


146      ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

Francisco  on  receipt  of  the  castings  maintains  that  the  rate  should 
be  $1.90  and  declines  to  deliver  them  without  payment  of  the  excess. 
Has  A  fulfilled  his  contract. 

If  B  pays  the  excess  freight,  what  is  he  entitled  to  recover, 
and  from  whom? 

Explain  the  necessary  course  in  which  to  collect  from  the 
party  ultimately  liable? 

If  B  refuses  to  pay  the  excess  freight,  and  demands  the  cast- 
ings and  suffers  actual  damage  in  double  the  amount  of  the  excess, 
freight  by  reason  of  the  railroad's  refusal  to  deliver,  what,  in  that 
event,  can  B  recover,  and  from  whom? 

9.  A  promissory  note  reads  as  follows : 

On  May  i,  1905,  I  promise  to  pay  to  the  order  of  myself,  the 
sum  of  One  Thousand  Dollars,  payable  at  the  American  Bank,  with 
interest  after  maturity  at  6  per  cent  per  annum,  for  value  received. 

John  Smith. 

The  note  was  endorsed  in  blank,  John  Smith. 

Upon  May  1st,  John  Smith  appeared  at  the  American  Bank  and 
offered  to  pay  the  note,  but  it  was  not  there.  He  did  not  know 
who  held  it.  Before  the  end  of  the  day,  he  paid  the  American 
Bank  the  amount  due  to  be  paid  to  the  holder  as  soon  as  he  should 
present  the  note.  The  holder  of  the  note  failed  to  present  it  for 
payment  until  June  1st.  On  May  I5th  the  American  Bank  became 
insolvent. 

Could  the  holder  recover  from  John  Smith  the  amount  due  on 
the  note,  and  if  so,  how  much? 

Why  is  it  a  common  practice  to  have  a  note  made  to  the  maker's 
order  and  endorsed  by  him? 

10.  A  shipper  delivers  goods  at  a  freight  depot  for  shipment, 
and  receives  a  printed  bill  of  lading  containing  a  number  of  stipu- 
lations, but  does  not  read  it.    He  subsequently  claims  that  he  is  not 
bound  by  certain  stipulations  in  the  bill  of  lading,  first,  because  he 
did  not  read  them,  and,  second,  because  they  are  unreasonable. 

State  the  principles  on  which  the  shipper's  rights  are  to  be  de- 
termined. 


COMMERCIAL  LAW  147 

CHICAGO,  MAY  8,  1906. 
(Time  3  Hours.) 

1.  What  are  the  advantages  of  incorporating  a  business?    For 
what  purpose  may  corporations  be  formed  in  Illinois?     Name  ex- 
ceptions, if  any. 

2.  Must  each  share  be  paid  for  in  full  by  each  subscriber  lo- 
an Illinois  Corporation  before  a  certificate  of  stock  may  be  issued 
to  him? 

May  capital  stock  be  paid  for  in  property? 

3.  Stock  Certificate  issued  to  the  original  subscriber  bearing 
the   printed  words  "Fully  paid  and  non-assessable,"  when  in   fact 
it  was  only  partly  paid  for;  subsequently  it  is  sold  and  assigned  to 
a  purchaser  without  notice  of  the  fact  that  it  is  not  paid  for  in  full. 
What  remedy  has  a  creditor  of  the  corporation  against  the  original 
subscriber  and  against  the  transferee? 

4.  Has  the  holder  of  a  single  share  of  stock  the  right  to  inspec- 
tion of  the  books?     If  so,  when,  where  and  under  what  circum- 
stances? 

5.  How   should   an   agent   execute   negotiable  paper   in   order 
that  it  might  be  binding  on  the  principal  and  not  upon  himself? 

6.  When  is  an  acceptance  by  mail  or  telegraph  of  an  offer 
complete?     When  can  an  offer  be  withdrawn  without  liability? 

7.  When  goods  are  ordered  of  a  New  York  Corporation  by 
a  Chicago  business  house,  whose  agent  is  the  carrier?     Who  can 
bring  suit  if  the  goods  are  lost  in  transit? 

8.  The  date  of  maturity  of  a  note  is  changed  by  the  payee  with 
the  consent  of  the  drawer.     How  does  it  affect  the  surety  on  the 
note,  if  the  alteration  makes  the  note  due  at  an  earlier  date?     At 
a  later  date? 

9.  A  shoemaker  sells  out  business  to  a  corporation  and  agrees 
not  to  go  in  business  in  the  State  of  Illinois  for  a  period  of  25 
years.     Ten  years  later  he  establishes  himself  again  in  business  in 
Illinois.     Has  the  corporation  a  right  to  recover  in  an  action  for 
damages  for  breach  of  his  contract? 

10.  What  is  the  liability  of  a  bank  in  reference  to  negotiable 
paper  left  with  it  for  collection,  which  it  is  necessary  to  send  to- 
another  city  for  collection? 


148      ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

CHICAGO,  MAY  7,    1907. 
(Time  3  Hours.) 

1.  In  stating  accounts  between  partners,  is  a  partner  who  has 
advanced  more  than  his  share  of  capital  entitled  to  interest  on  such 
excess  ?    Or  is  one  who  has  overdrawn  properly  debited  with  interest 
on  such  over-drafts?     It  is  to  be  assumed  in  each  case  that  this 
matter  is  not  covered  by  express  agreement. 

2.  Suppose  a  partner   engaged  in  a  certain  line   of  business, 
engages,  during  the  partnership,  in  ventures  of  his  own  account  in 
the  same  line  of  business.     Can  he  be  compelled  to  account  to  the 
firm  for  profits  thus  realized?     And  what  would  be  the  rule  if  the 
business  he  thus  engaged  in  were  outside  the  scope  of  the  partner- 
ship agreement? 

3.  What  are  the  rights  of  a  check-holder,  in  Illinois  as  against 
the  Bank  on  which  the  check  is  drawn,  provided  the  drawer  has 
funds    there    sufficient    to    meet    the    check?      Does    any    different 
rule  obtain  in  some  other  states  and  if  so  what  is  it? 

4.  What  is  essential  under  the  law  of  Illinois  in  order  to  fix 
the  liability  of  an  indorser  of  a  promissory  note? 

5.  What  are  "days  of  grace"  as  understood  in  the  law  relating 
to  Commercial  paper? 

6.  What  do  you  understand  a  Corporation  is?    What  are  some 
of  its  essential  or  usual  powers  and  what  reason  suggests  the  ad- 
vantage of  carrying  on  business  by  means  of  incorporated  companies 
instead  of  by  individuals  or  partnerships? 

7.  What  is  corporate  stock  and  how  does  it  differ  from  bonds 
issued  by  a  corporation? 

8.  What    is    the    difference    between    preferred    and    common 
stock?     Can  you  state  how     and  to  what  extent  preference  or  ad- 
vantage is  given  in  respect  of  preferred  stock  by  such  provisions 
as  are  usually  or  frequently  made  as  to  it? 

9.  By  whom  are  the  directors  of  a  corporation  usually  selected 
and  by  whom  are  its  officers  generally  chosen? 

10.  State   generally   who   is    entitled  to   file   a  bill   to   compel 
the  officers  and  directors  of  a  corporation  to  account  for  any  breach 
of  duty  or  breach  of  trust? 


COMMERCIAL  LAW  149 

CHICAGO,  ILL.,  December  4,  1907. 
(Time,  3  Hours.) 

1.  What  is  a  contract?     If  a  man  give  his  note  for  One  Thou- 
sand Dollars  to  a  friend  simply  as  a  gift,  can  the  payee  of  the  note 
collect    it    at    maturity?      Give    reasons    for    your    answer. 

2.  Where  a  contract  is  in  writing  is  it  admissible  for  one  of 
the  parties   to  it  to   vary  it   by  proving  that   at  the  time  it  was 
entered  into,  such  was  their  oral  agreement?    Give  reasons  for  this. 

3.  Suppose  that  a  man  owing  a  debt  of  $20  should  go  to  his 
creditor  and  offer  him  a  check  for  that  amount,  which  the  creditor 
should   refuse,   saying  he   preferred  currency ;    that  thereupon  the 
debtor  should  say,  "Well,  I  only  have  $10  with  me ;  I  will  pay  you 
that  and  bring  the  other  $10  as  soon  as  I  can  get  it  from  my  office," 
and  thereupon   the  creditor   should  give  the   debtor   a   receipt   for 
$20.     If  the   debtor   failed  to  pay  the  balance   of  $10,  would  this 
receipt  prevent  the  creditor  from  recovering  it?     Give  reasons  for 
your  answer  whatever  it  is. 

4.  What  are   the   essential   features   of   a   partnership?     Are 
persons  ever  treated  in  law  as  partners  of  a  firm  as  to  third  per- 
sons dealing  with  the  firm  when,  in   fact,  there  is  no  agreement 
of  partnership  between  them  and  other  members  of  the  firm,  under 
any  circumstances,  and  if  so,  what  circumstances  in  a  general  way? 

5.  Suppose  that  a  party  living  in  Chicago  receives  a  check  from 
his  debtor  and  deposits  it  at  his  bank  during  the  usual  hours  of 
business  the  next  day  after  it  is  received,   but  before  this  check 
reaches  the  bank  on  which  it  is  drawn,  that  bank  closes  its  doors 
and  suspends  payment;  on  whom  must  the  loss,  if  any,  fall — the 
drawer  of  the  check  or  the  party  to  whom  he  sent  it?     State  also 
any   circumstances   under   which  your    answer  would   be   different 
from  what  it  is  to  the   foregoing  question,  where  a  bank   failed 
before  a  check  drawn  on  it  was  paid. 

6.  What   do   you   understand   by   the   term   "Legal   Tender," 
and    having    defined    this,    state    what    falls    within    that    designa- 
tion in  this  country? 

7.  What  are  the  two  great  objects  of  a  bankrupt  act,  generally 
speaking?     What  is  a  preferential  payment  or  transfer;  how  may 
it   be    avoided   and   what   is   the   final   proceeding,   so    far   as   the 
bankrupt  is  concerned,  if  he  has  complied  with  the  terms  of  the  act? 


150      ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

8.  In  the  law  relating  to  corporations  the  term  "ultra  vires" 
is   frequently  employed.     Tell  in  a  general  way  what  you  under- 
stand by  this  and  how  acts  that  are  ultra  vires  are  regarded  in 
the  law? 

9.  Has  the  president  or  other  managing  officer  of  a  corpora- 
tion, by  virtue  of  his  office,  any  right  to  employ  its  funds  for  his 
own  purposes? 

10.  State,  if  you  know,  whether  as  a  general  rule  under  the 
law  of  Illinois,  one  corporation  may  own  and  vote  stock  in  another 
corporation,  both  of  these  corporations  being  organized  under  the 
laws    of   the   State   of   Illinois,   and   what  would  be  your   opinion 
if  one  of  these  companies,  namely,  the  company  in  which  the  stock 
in  question  was  held,  were  an  Illinois  corporation,  and  the  other 
company,  namely,  the  company  seeking  to  vote  the  stock,  were  a  cor- 
poration organized  under  the  laws  of  another  state? 


CHICAGO,  ILL.,  MAY  6,  1908. 
(Time,  3  Hours.) 

1.  How  does  the  liability  of  a  Guarantor  differ  from  that  of 
an  endorser  of  a  promissory  note  in  Illinois? 

2.  A  corporation  called  the  Western  Trading  Company  was 
incorporated  under  the  laws  of  the  state  of  Illinois.     A  certificate 
of  complete  organization  was  issued  by  the  Secretary  of  State  and 
everything  necessary  to  constitute  this  a  de  jure  corporation  was 
done  except  to  record  the  certificate  in  the  office  of  the  Recorder 
of  Deeds  of  Cook  County,  the  principal  office  of  the  Company  being 
in  Chicago.     After  the  company  was  thus  organized,  its  president 
ordered  some  bonds  engraved  by  the  American  Bank  Note  Com- 
pany, and  the  bonds  not  being  paid  for  on  delivery,  the  work  thus 
ordered   having  been  charged   to    the  Western  Trading   Company, 
on  the  books  of  the  plaintiff  company  and  bills  rendered  accordingly, 
the    latter   company   sued   the   president    of    the   Western   Trading 
Company    for   the   Contract   price   of   the   work.     The  court  gave 
judgment  for  the  plaintiff  on  the  ground  that  the  Western  Trading 
Company,  not  having  filed  in  the  office  of  the  Recorder  copy  of  its 
Articles    of    incorporation,   as    required   by   law,   was   incapable   of 
contracting  and  would  not  be  held  liable  on  this  contract.     Give 
your  opinion  on  this  case. 


COMMERCIAL  LAW  151 

3.  Is  the  following  instrument  a  negotiable  promissory  note? 

Chicago,  April  8,  1908. 

Thirty  days  after  William  H.  Taft  is  elected  President  of  the 
United  States,  I  promise  to  pay  to  the  order  of  William  J.  Bryan 
Five  Hundred  Dollars  at  the  First  National  Bank  of  Chicago  for 
value  received.  (Signed)  Joseph  G.  Cannon. 

Give  reasons  for  your  answer. 

Can  the  payee  collect  this  amount  thirty  days  after  the 
stipulated  contingency  occurs?  What  is  that  contingency — the  cast- 
ing of  the  popular  vote,  the  action  of  the  electors  in  the  several 
states,  or  the  action  of  Congress  in  opening  and  canvassing  the 
returns?  Explain  why  you  answer  as  you  do. 

4.  A   firm,    composed   of   three   members,   was   about   to   dis- 
solve partnership   and  go  out  of  business.     It  occupied,  and  had 
for  many  years,  premises  which  the  firm  leased  and  did  not  own. 
One   of  the  members,  without  the  knowledge  of   his   co-partners, 
obtained  a  lease  of  these  premises  some  time  prior  to  the  dissolution 
of  the  firm,  but  when  it  was  contemplated,  the  new  lease  to  begin 
when  the  old  one  expired,  and  after  the  dissolution,  sold  the  lease 
for  a  large  sum  of  money.     Is  he  under  any  obligation  to  account 
to  his  partners  for  the  profits  thus  realized  as  if  the  same  were 
partnership  property?     Give  reasons  for  your  answer. 

5.  What  is  understood  by  the  term  "debentures?"     How  do 
they  differ  from  other  securities  or  stock?     If  there  is  any  differ- 
ence in  England  and  this  country  in  the  practice  of  issuing  deben- 
tures and  the  usual  meaning  of  the  term,  state  it. 

6.  What  is  a  bill  of  exchange?    Is  an  oral  acceptance  of  such  a 
bill  valid  in  Illinois  or  must  it  be  in  writing? 

7.  Must  the  stock  of  an  Illinois  corporation  be  paid  in  whole 
or  in  part  before  certificate  of  complete  organization  issues,  and,  if 
so,  in  what  may  such  payment  be  made? 

8.  What  is  a  surety?     Can  he  exonerate  himself  from  his  con- 
tract by  showing  that  no  consideration  therefor  moved  to  him;  that 
he  received  no  benefit  from  its  execution  and  no  part  of  the  con- 
sideration upon  which  it  was  executed?    If  so,  why?    If  not,  why? 
Explain  clearly. 

9.  Is  a  person,  who  is  a  member  of  two  firms,  under  liability 
to  account  to  the  other  members  of  either  firm  for  profits  which  he 
realized  from  his  efforts  or  investment  in  the  other?     If  not,  why 


152      ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

not?    If  there  are  circumstances  in  which  he  would  or  might  be  so- 
liable,  state  them. 

10.  Where  one  party  is  entitled  to  an  accounting  from  another,, 
what  is  the  usual  and  proper  proceeding  in  Illinois  and  in  the  Fed- 
eral Courts  for  securing  an  account? 


CHICAGO,  ILL.,  NOVEMBER  21,  1908. 
(Time,  3  Hours.) 

1.  What  is  an  agent?     Name  some  familiar  classes  of  agents 
and  indicate  in  a  general  way  the  nature  of  their  agency. 

2.  August  ist,   1893,  there  was  a  great  panic  on  the  Chicago 
Board  of  Trade  and  a  very  weak  and  demoralized  market  in  pork. 
A  firm  doing  business  on  the  Board  was  on  that  day  carrying  a 
large  amount  of  pork  for  a  customer.     He  failed,  was  called  for 
margins  and  was  unable  to  furnish  them,  so  this  firm  had  a  right 
on  that  day  to  sell  out  his  pork.     As  the  market  was  in  such  a 
panicky  condition  they  did  not  sell  that  day  but  rendered  their  cus- 
tomer Account  Sales  at  the  average  price  for  the  day,  selling  out 
his  stuff  a  little  at  a  time  day  by  day,  thereafter  until  it  was  all  sold 
at  somewhat  higher  prices  than  those  at  which  they  had  rendered 
their  account. 

In  settlement  of  the  account  between  them  and  their  customer, 
which  figures  should  be  taken — those  at  which  the  account  was  ren- 
dered, or  those  actually  realized? 

3.  Two  merchants  buying  of  and  selling  to  each  other  thus 
carried  on  business  for  some  time,  rendering  to  each  other  accounts 
the  first  of  every  month.     These  accounts  were  received  without 
objection,  but  after  a  month  or  two,  one  of  the  parties  claimed  that 
he  had  never  received  and  that  the  other  had  never  delivered  to  him 
a  considerable  bill  of  goods  charged  to  him  in  one  of  these  monthly 
accounts.    Being  sued  therefor  he  insisted,  after  the  party  suing  him 
had  proved  that  the  account  containing  the  charge  for  this  bill  of 
goods  has  been  rendered  and  received  without  objection,  that  he 
must  go  further  and  prove  the  actual  sale  and  delivery  of  the  goods 
in  dispute  before  he  could  recover. 

What  is  the  law  as  to  this? 


COMMERCIAL  LAW  153 

4.  Are  special  charters  or  Acts  of  Incorporation  for  corpora- 
tions for  profit  allowed  in  Illinois?     Under  what  laws  or  general 
system  are  such  corporations  organized? 

5.  What  are  the  general  duties  of  the  president  of  a  corpora- 
tion in  this  State  and  what  is  the  general  nature  of  his  authority? 

6.  A  merchant  in  Chicago  owing  a  manufacturer  in  Haverford, 
Pennsylvania,  for  a  bill  of  goods,  sent  to  the  latter  at  Haverford, 
his  check  drawn   on  a  bank   in  Chicago   for   the  amount  thereof, 
October  26th.    The  latter  received  the  check  the  28th  at  Haverford, 
but  keeping  no  bank  account  there,  although  there  was  a  bank  in 
that  place,  sent  the  check  that  day  to  his  office  in  Philadelphia,  where 
he     transacted     his     banking     business,     where     it     arrived       on 
the    morning    of    the    2Qth.      It    was    deposited    that    day    in    a 
Philadelphia  bank  to  the  credit  of  the  manufacturer  and  sent  on  to 
Chicago  for  collection  in  due  course,  so  that  it  could  be  presented 
for  payment  on  October  3ist.     The  bank  on  which  it  was  drawn 
closed  its  doors  the  evening  of  the  day  before  and  when  the  check 
was  sent  around  the  morning  of  the  31  st  to  the  bank  on  which  it 
was  drawn,  the  latter  had  failed  and  was  not  open  at  all  that  day. 
If  the  check  had  been  deposited  at  Haverford  the  day  it  was  re- 
ceived there  it  would  have  reached  Chicago  in  time  to  be  presented 
for  payment  to  the  bank  on  which  it  was  drawn  while  that  bank 
was  open.     The  drawer  of  the  check  had  on  deposit  in  that  bank 
funds  more  than  sufficient  to  pay  all  his  checks.     Under  these  cir- 
cumstances   who    must   bear   the    loss    if   any — the    drawer   of   the 
check,  or  the  payee  to  whom  it  was  sent? 

7.  Can  a  corporation  in  Illinois  organized  to  build  and  operate 
a  railway,  carry  on   the   business  of   keeping  a  dry  goods   store? 
Give    reasons    for    your    answer    and    state    the    general    principle 
applicable. 

8.  Define  the  drawer  of  a  bill  of  exchange,  the  payee  and  the 
acceptor. 

9.  What    is    corporate    stock    and    how    does    it    differ    from 
corporate  bonds? 

10.  What   is   a   partnership    and   how   does   it   differ    from   a 
corporation? 


154      ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

CHICAGO,  ILL.,  MAY  5,  1909. 
(Time  3  Hours.) 

1.  How    may   a   partnership   at   will   be    dissolved   when   the 
partnership  agreement  does  not  refer  to  this  subject?    Under  what 
circumstances  generally  may  a  partnership  for  a  definite  term  be 
dissolved  before  the  term  has  expired,  and  how  can  such  dissolution 
be  compelled? 

2.  Is  a   contract   for   the   sale   of   corporate  stock,  bonds,   or 
other  personal  property  valid  under  the  law  of  Illinois  if  oral  and 
not  in  writing,   and  what  generally  is  the  law  elsewhere  on  this 
point,  if  you  know? 

3.  V.  C.  Turner  agreed  upon  sufficient  consideration  that  on 
or  before  a  certain  day  George  Schneider  might,  if  he  so  elected, 
buy  of  him  500  shares  of  stock  in  the  North  Division  Street  Ry.  Co., 
at  $500  per  share.     Before  the  stipulated  date  Schneider  tendered 
the  agreed  price  and  demanded  the  stock.     The  contract  was  made 
and  was  to  be  performed  in  Chicago.    Was  it  valid?    Give  reasons. 

4.  The  president  of  an   Illinois  corporation  went  to  a  bank 
in  Chicago  and  requested  a  loan  on  his  note  for  $10,000  for  his 
personal  benefit.    The  Bank  President  said  he  would  make  the  loan 
if  the   directors  of  the  borrower's   Company  would  authorize  the 
borrower  to  endorse  it  in  the  name  of  the  company.    They  did  so, 
the  endorsement  was  made,  the  Bank  discounted  the  note  and  paid 
the  proceeds  to  the  maker.     He  failed  to  pay  it,  proper  demand 
was  made  and  notice  of  non-payment  given.     Is  the  endorsement 
binding  on  the  Company?     Give  reasons  for  your  answer. 

5.  Under  what  laws  are  National  Banks  organized  and  con- 
trolled, that  is,  under  the  laws  of  what  sovereignty  or  government? 

6.  Can  a  National  Bank  loan  money  on  real  estate  security? 
If  it  does,  can  a  borrower  who  has  given  a  real  estate  mortgage 
to  secure  such  a  loan,  defeat  the  lien  of  the  Bank  on  the  real  estate 
covered  by  the  mortgage? 

7.  What  are  days  of  grace  on  commercial  paper  at  common 
law?    Are  they  allowed  by  the  law  of  Illinois? 

8.  If  a  man  is  interested  in  the  profits  of  a  business,  is  he 
necessarily  a  partner  therein?     If  you  answer  this  question  in  the 
negative,  give  an  illustration  of  when  a  party  so  interested  would 
not  be  a  partner. 


COMMERCIAL  LAW  155 

9.  Suppose  a  stock  broker  buys  or  sells  stocks  for  a  customer 
in   Chicago   when  he  has  no  broker's  license,  as   required  by  the 
ordinances  of  that  City.     Can  he  recover  his  commissions  on  such 
transaction? 

10.  Can  a  corporation  be  organized  in  Illinois  under  the  laws 
of  that  state  to  deal  in  real  estate? 


CHICAGO,  ILL.,  MAY  4,  1910. 
(Time,  3  Hours.) 

1.  What   is   a  contract?     Name  the  essential  elements   of  a 
valid  contract. 

2.  What    is   the   difference   between    the   obligations    and   lia- 
bilities of  a  general  partner  in  a  partnership  and  a  stockholder  in 
a  private  corporation  organized  for  pecuniary  profit  under  the  law 
of  Illinois? 

3.  What  is  a  limited  partnership  under  the  law  of  Illinois? 
State  the  difference  between  the  obligations  of  limited  partners  and 
general    partners    under    the    Illinois   law   governing    limited   part- 
nerships. 

4.  What  are  the  general  powers,  under  the  law  of  Illinois,  of  a 
corporation  organized  for  pecuniary  profit?    And  by  whom  are  those 
corporate   powers    exercised?     What   are   the   obligations   and   lia- 
bilities of  those  who  shall  assume  to  exercise  corporate  powers  or 
use  the  name  of  a  ocrporation,  or  pretended  corporation,  without 
complying  with  the  provisions  of  the  Illinois  statute  respecting  the 
incorporation  of  such  corporation  or  pretended  corporation? 

5.  How  should  an  agent  sign  a  contract  so  as  to  obligate  his 
principal  instead  of  himself? 

6.  What  is  the  effect  of  the  certification  by  a  bank  of  a  check 
drawn  upon  it,   (a)    as  to  the  funds  of  the  drawer  of  the  check, 
(b)  as  to  the  rights  of  the  bank  respecting  the  funds  evidenced  by 
the  check,   (c)   as  to  the  rights  of  the  drawee  of  the  check? 

7.  What  is  the  difference  between  a  plain  promissory  note  and 
a  collateral  promissory  note? 

8.  Assume  collateral  to   have  been  deposited  with   the  payee 
of  a  promissory  note :  in  the  absence  of  any  special  contract,  what 
are  the  duties  of  the  payee  before  he  can  convert  that  collateral 


156      ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

to  his  own  use   or  apply  it,  or  the  proceeds  thereof,  toward  the 
satisfaction  of  the  debt  evidenced  by  the  note? 

9.  Define  the  following  terms  : 

(a)  Legal  tender. 

(b)  Surety. 

(c)  Guarantor. 

(d)  Novation. 

(e)  Subrogation. 

(f)  Ultra  vires. 

(g)  Bailment, 
(h)  Beneficiary, 
(i)  Demurrage, 
(j)  Escrow, 
(k)  Executor. 

(1)      Administrator. 

(m)    Conservator. 

(n)     Chattel  mortgage. 

(o)     Bill  of  sale. 

(p)     Power  of  Attorney. 

10.  What  is  the  lawful  rate  of  interest  on  a  debt  in  the  State 
of  Illinois,  in  the  absence  of  a  contract  fixing  the  rate?    To  what 
rate  may  the  parties  contract?     What  is  the  penalty  in  Illinois  for 
usury  ? 


CHICAGO,  ILL.,  DECEMBER  23,  1910. 
(Time,  3  Hours.) 

1.  Name  the  necessary  elements  of  a  valid  contract?     What 
contracts  under  the  law  of  Illinois  are  required  to  be  in  writing? 
What  is  the  legal  effect  of  attaching  a  seal  to  a  contract? 

2.  Prepare  a  short  form  of  partnership  agreement  for  equal 
partners.     Wherein  does   a  partnership  differ  from  a  corporation? 

3.  What  are  the  general  obligations  of  a  common  carrier  of 
goods?    Of  a  carrier  of  persons?    What  is  a  bill  of  lading? 

4.  What  is  the  Statute  of  Frauds? 

5.  How  much  of  the  capital  stock  of  a  corporation,  organized 
under  the  laws  of  Illinois,  must  be  paid  in  before  a  charter  can 
be  obtained?     What  are  the  obligations  of  a  subscriber  to  the  cap- 
ital  stock  of   a  corporation  organized  under  the  laws  of   Illinois 
respecting  payment  for  the  stock  subscribed  by  him? 


COMMERCIAL  LAW  157 

6.  What  is  the  lawful  rate  of  interest  in  Illinois  in  the  ab- 
sence of  a  contract?    To  what  rate  may  the  parties  contract? 

7.  Define  the  following: 

(1)  Legal  tender. 

(2)  Bona  fide. 

(3)  Novation. 

(4)  Recoupment. 

(5)  Ultra  vires. 

(6)  Non  Compos  Mentis. 

(7)  Proxy. 

(8)  Debenture. 

(9)  Agent. 

(10)     Power  of  Attorney. 
State  the  difference  between  an  administrator  and  an  executor? 

8.  What  is  a  limited  partnership  under  tHe  laws  of  the  State 
of  Illinois? 

9.  What   are   the   obligations   of   a  bailee    for   hire? 

10.  Wherein  does  a  mortgage  differ  from  a  trust  deed? 


CHICAGO,  ILL.,  MAY  25,  1911. 
(Time,  3  Hours.) 

1.  Define  the  following: 

(a)  Accommodation  paper. 

(b)  Bill   of   exchange. 

(c)  Demurrage. 

(d)  Escrow. 

(e)  Collateral. 

(f)  Receiver. 

(g)  Executor. 

(h)     Administrator, 
(i)      Conservator, 
(j)      Guardian. 

2.  (a)  How  many  incorporators  are  required  to  form  a  corpor- 
ation for  profit  under  the  laws  of  Illinois? 

(b)  What  is  the  difference  between  the  liability  of  a  partner  and 
of  a  stockholder  in  a  corporation? 

3.  (a)  What  is  the  difference  between  preferred  and  common 
stock  of  a  corporation? 

(b)  Is  there  any  provision  of  the  Illinois  law  for  preferred  and 
common  stock? 


158      ILLINOIS  EXAMINATIONS  IN  ACCOUNTANCY 

4.  (a)    By  whom  are  the  directors  of  a  corporation  elected 
under  the  laws  of  Illinois? 

(b)  Under  the  laws  of  Illinois,  by  whom  are  the  By-Laws  of  a 
corporation,  for  profit,  made? 

5.  How  should  an  agent  execute  a  paper  in  order  that  it  may 
be  binding  on  his  principal  and  not  upon  the  agent? 

6.  What  is  meant  by  stoppage  in  transitu,  and  who  can  exer- 
cise that  right? 

7.  What  effect  as  to  the  fund  in  the  bank,  has  the  drawing; 
of  a  check  thereon  by  the  depositor  and  the  delivery  of  the  check 
to  the  payee? 

8.  What  is  the  difference  between  a  sale  and  a  consignment? 

9.  Describe  the  Statute  of  Frauds,  and  state  the  purpose  of 
its  enactment. 

10.  Prepare  a  short  form  of   Power  of  Attorney  authorizing: 
the  attorney  in  fact  to  act  generally  for  the  Principal. 

CHICAGO,  ILL.,  MAY  31,  1912. 
(Time,  3  hours.) 

1.  State  the  essential  elements  of  a  contract. 

2.  State  the  steps  necessary  to  be  taken  to  complete  the  organ- 
ization  of   a   corporation   for  pecuniary  profit   under  the   laws   of 
Illinois. 

3.  Submit  a  short  draft  of  articles  of  copartnership  between  two 
partners  each  contributing  an  equal  amount  of  capital. 

4.  What   is   the   legal   effect   of   the  certification   of   a   check 
drawn  upon  a  bank  (a)  as  to  the  bank  upon  which  it  is  drawn;  (b) 
as  to  the  funds  of  drawer  against  which  the  check  is  drawn? 

5.  Define  the  following  terms  : 

(a)  Trustees. 

(b)  Trust  deed. 

(c)  Debenture. 

(d)  Executor. 

(e)  Administrator. 

(f)  Legal  tender. 

(g)  Non  compos  mentis, 
(h)  Guarantor. 

(i)      Bill  of  Exchange, 
(j)      Surety. 


COMMERCIAL  LAW 


159 


6.  Under  the  law  of  Illinois,  can  a  corporation  be  organized  to 
construct  a  building  for  office  purposes? 

7.  What  proportion  of  the  stock  of  a  corporation  organized 
for  pecuniary  profit  under  the  laws  of  Illinois  must  be  paid  in  before 
the  certificate  of  complete  organization  issues? 

What  proportion  of  the  increase  of  the  capital  stock  of  a  cor- 
poration must  be  paid  in  at  the  time  of  the  subscription  thereto? 

8.  Define  a  limited  partnership  under  the  laws  of  Illinois. 

9.  Submit  a  draft  of  a  short  form  of  negotiable  promissory 
note. 

10.  What  is  the  difference  between  a  partnership  and  a  cor- 
poration as  affecting  the  liability  of  the  partners  and  stockholders? 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 


THIS  BOOK  IS  DUE  ON  THE  LAST  DATE 
STAMPED  BELOW 


DEC  15  1917 


30rn-6,'14 


18612 


TY  OP  CALIFORNIA  LIBRARY 


ma 

*  I '-  i  j 


BB 

mHB^BBB 


